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Prescription drugs are a $348 billion business, and Americans are paying the price [1]

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Date: 2023-02-15  

Americans are suffering because they can’t afford to pay for medicines they desperately need. In recent years, between 11% and 15% of Americans were unable to take their medicine the way it was prescribed—they rationed their supply or just didn’t take it at all—because the price was too high. Aaron Kesselbaum, who teaches at Harvard Medical School, offered an even higher estimate: “One out of every four patients reports not filling a prescription today for themselves or a family member due to cost.”

This destructive rationing only creates worse problems down the road. More people are having heart attacks and other issues that could have been prevented if they’d had access to affordable medicine early on—and for less money than it costs to treat the heart attack after it happens. Overpriced drugs lead to a health care system that is reactive rather than proactive. It costs more money overall, and produces worse health outcomes.

Talking about money, the Center for American Progress (CAP) noted, “the high cost of prescription drugs is a significant driver of medical debt.” Furthermore, it is a stain on our nation that so many of our people have had to travel to Mexico or Canada, where medication is so much cheaper (there was a wave of media stories on this phenomenon in 2019, although the extent to which this behavior has continued since the pandemic began is unclear).

There’s no question that Obamacare has helped make this situation better than it was a decade ago, when people could suddenly lose their health insurance because they lost their job, and then find themselves unable to get new coverage either because the cost of premiums was exorbitant, they couldn’t get a policy as an individual customer, they had a preexisting condition, or myriad other reasons. But problems remain nonetheless. And those problems hit hardest those who have lower incomes and/or less in savings or wealth to draw on, folks who disproportionately are Americans of color. That’s why for some diseases, far fewer wealthy people die than poor people—about one-third as few in the case of cancer, for example.

“The idea that the care you deliver could bankrupt somebody and hurt an entire family is devastating,” said Dr. Benjamin Breyer, a reconstructive urologist at the University of California, San Francisco, told The New York Times.

The problem is that so many drugs cost so damn much. Just look at what has happened to the amount of money Americans spend on prescription medications over the past 20 years. In 2000, the amount was $122 billion. If the amount we spent increased at the overall rate of inflation, it would have been $189 billion by 2020. What was the actual 2020 amount? Try $348 billion. The increase was three and a third times greater than what we saw for consumer prices in general. Not only that, but without serious reforms, the Centers for Medicare and Medicaid Services projections show the amount climbing to $567 billion by the end of the decade.

So that’s the “what” of the cost. How about the why? According to the Peter G. Peterson Foundation, these are the predominant issues:

high and rising prices for brand-name drugs;

a lack of competition due to the U.S. patent system;

the use and cost of specialty drugs

a lack of transparency in drug prices.

Regarding those brand name drugs, they represent only 8% of all pharmaceuticals sold, yet their cost comes to just under 84% of what Americans pay for drugs overall. To paraphrase famed bank robber Willie Sutton: “that’s where the money is.” The first three items on the above list are interconnected, as most of that money comes from new, expensive drugs, along with a patent system that allows companies to keep extending the patents on those drugs in highly dubious ways.

For just one example, in 2016, Humira, a drug used to help treat rheumatoid arthritis and Crohn’s disease, cost $50,000 a year, and its patent was about to expire when the year came to a close. But thanks some real clever lawyerin’, its manufacturer, AbbVie, managed to prevent a rival generic from becoming available to the American people for six additional years. The company made $114 billion on Humira during that period because it manipulated the system and maintained its monopoly, allowing it to keep on increasing a price that now sits at a gaudy $80,000/year.

Good for the company, bad for patients, and bad for our government—AbbVie’s patent shenanigans on this drug alone cost Medicare $2.2 billion just from 2016 to 2019, and more since. Some Humira patients, including 80-year-old Kentuckian Sue Lee, told The New York Times that they stopped taking the medicine they needed, while others, such as Barb Teron of Ohio, said they put off retiring because of the skyrocketing out-of-pocket cost.

This analysis from the CAP explained what’s wrong with the patent process:

Drug companies also benefit from patents, which give them monopoly power for their on-patent products. These patents ensure that prices remain high by reducing competition. Drug patents last for 20 years after the filing date. Pharmaceutical companies have also employed tactics such as evergreening and thicketing to prolong a drug’s exclusivity. When evergreening, pharmaceutical companies make certain modifications to a drug such as changing its chemical composition slightly or making an external change as minor as adding a stripe to a pill in order to preserve their patents. A 2018 study in the Journal of Law and the Biosciences found that 78% of new drug patents awarded in the past decade went to drugs that already existed. 70% of the nearly 100 bestselling drugs extended their exclusivity protections at least once, and 50 percent extended their patents more than once. The second tactic—thicketing—involves flooding the U.S. Patent and Trademark Office and the courts with excessive patents and applications to make it difficult for competing firms to secure patents. These tactics help preserve pharmaceutical companies’ monopolies and ensure that drug prices remain uncompetitive and thus less affordable for everyday Americans.

The huge cost of these drugs in the U.S. is split between government programs like Medicare and Medicaid, private insurers, and what people pay out of pocket. But of course whatever insurers pay ultimately gets passed down to the rest of us in the form of higher premiums. Even if one’s employer pays a good part of the premium, that’s still money that could’ve gone to pay raises, or other benefits. The same basic principle applies when the government subsidizes the premium through Obamacare. The money, in the end, comes from us.

Let’s break it down to the individual level. On average, every American spends about $1,300 on prescription drugs each year. That’s enough to feed the average American for almost four months.

If you’re asking yourself where all that money goes, one pretty good answer is what you probably expect: profits (although it also doesn’t help that most big drug companies plow more dollars into sales and marketing than research). The Los Angeles Times looked only at pharmaceutical companies that received government money during COVID-19, and found that they made a whopping $24 billion in profits in 2020. Oh, wait a minute, that was only for the first frickin’ half of 2020.

More broadly, a report from the Government Accountability Office stated: “Among the largest 25 [pharmaceutical] companies, annual average profit margin fluctuated between 15 and 20 percent. For comparison, the annual average profit margin across nondrug companies among the largest 500 globally fluctuated between 4 and 9 percent.” Big drug companies on average make more than double the profit of other big companies. Something sure ain’t right here.

What’s even more frustrating is that it doesn’t have to be this way. We know that because it isn’t that way in other wealthy, Western countries.

This is no one year phenomenon, in case you were wondering.

U.S. spending is far from the biggest throughout the 1980s and early 1990s, and only surpasses its peers around 1998, never looking back (unfortunately for us).

Why do Americans pay so much more than our economic peers, essentially ponying up well more than a reasonable share of the cost for the creation of new medicines? Why do we pay more than twice what the British and Swedes pay and more than three times the cost for the Dutch? The answer is pretty simple, as per Bloomberg: “Unlike other nations, the US doesn’t directly regulate medicine prices. In Europe, the second-largest pharmaceutical market after the US, governments negotiate directly with drugmakers to limit what their state-funded health systems pay.” We just allow the companies to charge whatever they want. But that’s starting to change.

The Inflation Reduction Act (IRA), which President Biden signed into law on Aug. 16, 2022, passed despite every Republican in the House and Senate voting no—showing that their loyalty lies with Big Pharma rather than average Americans. This law included a number of provisions that will collectively make significant progress toward reducing prescription drug costs for millions of Americans on Medicare in the following ways:

Caps the amount that seniors will have to pay for prescription drugs they buy at the pharmacy at $2,000 a year.

Caps the amount that seniors will have to pay for insulin at $35 for a month’s supply.

Provides access to a number of additional free vaccines, including the shingles vaccine, for Medicare beneficiaries.

Will further lower prescription drug costs for seniors by allowing Medicare to negotiate the price of high-cost drugs and requiring drug manufacturers to pay Medicare a rebate when they raise prices faster than inflation.

A recent study published in the Journal of the American Medical Association found that “the IRA will likely benefit nearly half of Medicare-insured insulin users and may improve prescription satisfaction, adherence, and affordability among patients.” The Kaiser Family Foundation did a deep dive into the impact all of the prescription drug provisions of the IRA will have, for anyone who wants more information.

It’s also important to note that, although we’re focused here on prescription drug prices, insulin isn’t the only cost for those folks who are diabetic. They need to check their blood sugar constantly—the old-fashioned way is pricking oneself multiple times a day, which can be painful. We now have glucose monitors that people can simply attach to themselves, and which send constant updates to their phone to let them know if their blood sugar is too high or too low. This kind of preventive care can literally save people's lives. For those with insurance, these items are still expensive, running up to $75/month. And for the uninsured, the cost is astronomical.

Yes, it’s frustrating that only those over 65 years of age can benefit from the aforementioned new law—especially given that 58% of the Americans who have diabetes are under that age. Democrats wanted (and still want, as the president made clear during the State of the Union) every American to have their insulin costs capped at $35 a month—and 8 million Americans require monthly insulin treatment. The problem was that the Senate parliamentarian ruled that that provision could not be included in a bill passed through the reconciliation process that requires only a bare majority of senators to approve, rather than the 60 votes needed to overcome a filibuster.

When Democrats kept that guarantee in the bill anyway, 43 Senate Republicans voted to block it, and that was sufficient. Democratic Sen. Ron Wyden of Oregon hit the nail on the head in his response: “Republicans have just gone on the record in favor of expensive insulin. After years of tough talk about taking on insulin makers, Republicans have once again wilted in the face of heat from Big Pharma."

Here’s how Big Pharma has been able to get away with this outrage:

The companies have been able to raise prices whenever they want, as a functional oligopoly with no major competitors in spite of patent expiration,” said Dr. Jeremy Greene, a professor of medicine at Johns Hopkins University. “They are locked into secret agreements with [pharmacy benefit managers] — also an oligopoly with three major players — in which neither party will disclose what the true price of insulin products actually is.

That’s not a surprise. The Trump administration made a lot of noise about reducing prescription drug prices, and issued a bunch of executive orders (remember the $200 discount cards each Medicare recipient got from Trump’s White House? Yeah, me neither) that in the end either accomplished little or whose implementation was blocked by the courts. Over the course of four years, his big talk on reducing prescription drug prices amounted to a big nothing. The CAP decried the “culture of corruption” that was Trump’s policy toward the pharmaceutical industry.

The difference between the two parties on prescription drug prices serves as one more example of their contrasting values. The Republicans will always defend corporate profits over the interests of hardworking Americans. Democrats may not be perfect, but even with the slimmest of congressional majorities, they not only fought for the people, they won, and passed real reforms.

Some critics of prescription drug price reform have argued that reducing Big Pharma’s revenues will stifle innovation, leading to fewer breakthroughs that save lives and improve health (never mind that reform would make medicines more accessible to Americans, saving plenty of lives right the fuck now). In a nutshell, that’s hogwash, as laid out in this analysis from the Harvard Business Review:

Large pharmaceutical companies are nowhere near as important to real drug innovation as they purport to be. Furthermore, smart policy changes can sustain and increase the pace of life-changing breakthroughs in biomedicine through increased funding of the National Institutes of Health (NIH), cutting the costs and accelerating the speed of clinical trials, and reforming patent law to stop innovation-blocking abuses used by Big Pharma to prevent new drugs from entering the market.

Here’s the thing about capitalism. At base, it assumes that there is a functioning relationship between supply, cost, and demand. When that relationship operates at least reasonably well, if a company raises the price of a product by enough that people can’t afford it, fewer people will buy it (this is a different question during a time of high inflation, when the price of all products and, presumably, wages are rising across the board). In other words, demand drops, resulting in too much supply, so companies have to then cut prices to get rid of their excess supply.

This actually works to some degree for most products, as long there isn’t either a monopoly or collusion across an industry—which needs to be vigorously monitored by regulators (the people Republicans hate because they stand in the way of corporations taking advantage of consumers). However, the relationship doesn’t function in certain parts of the economy—namely where the products are absolute necessities, things we can’t live without, things like prescription drugs. For such products, the demand to live is, well, pretty much infinite. Companies can get away with raising prices for life-saving products through the roof in a way, for example, Apple could never pull off for the newest iPad—no matter how much my daughters might want … never mind, sorry.

Prescription drugs are, in many cases, life-saving products. What would you pay to save the life of your child, your spouse, or life partner? What wouldn’t you? The answer to that question explains why Sovaldi, a game-changing treatment for hepatitis C, was introduced in 2014 at $84,000 for a course of treatment that runs 12 weeks—in the U.S., that is. The price was $900 outside the U.S., for what it’s worth. A Senate investigation concluded that the manufacturer, Gilead Sciences, priced and marketed it in a way that was “designed to maximize revenue with little concern for access or affordability.” Shocking, I know.

This is why the government has to step in on the side of the American people—as opposed to on the side of companies, as has happened far too often in our current patent system. Consumers don’t have any leverage to force pharmaceutical companies to reduce costs the way they do with other industries, namely by buying less of a product or none at all. Only by the government standing with consumers can we bring prescription drug prices under control.

And, as the American people heard from Joe Biden during the State of the Union, only one party understands that reality.

Ian Reifowitz is the author of The Tribalization of Politics: How Rush Limbaugh's Race-Baiting Rhetoric on the Obama Presidency Paved the Way for Trump (Foreword by Markos Moulitsas)

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