Roosevelt Institute | Cornell University

Skyrocketing Prescription Drug prices: The Search for a Solution

By Emma SahnPublished September 21, 2015

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High prescription drug prices have always been an issue in the U.S., and as of late, the topic has come to the forefront of political and economic discussions. After years of stable spending on prescription drugs, spending has recently skyrocketed: there has been a 12 percent increase in spending on prescription drugs in the past year. As a result, Americans with and without insurance are feeling the substantial costs of such price increases. With the presidential election coming up , a huge policy question will be how to address this powerful industry.
High prescription drug prices have always been an issue in the U.S., and as of late, the topic has come to the forefront of political and economic discussions. After years of stable spending on prescription drugs, spending has recently skyrocketed: there has been a 12 percent increase in spending on prescription drugs in the past year. As a result, Americans with and without insurance are feeling the substantial costs of such price increases. With the presidential election coming up , a huge policy question will be how to address this powerful industry.  


    The United States has historically always had the highest prescription drug costs in the world. As expected, research and development (R&D) is one reason for these high costs, but firms often spend even more on marketing. Big firms such as Johnson & Johnson, Pfizer, and Novartis all spent more on marketing in 2013 than on R&D. Although these firms do spend a substantial amount on consumer marketing, most of this money is spent on marketing for health care professionals — the ones who actually prescribe the drugs. The combination of these costs is shocking.  In 2013, average per capita pharmaceutical spending was $508, whereas in the U.S., it was $1,034. The implications associated with these absurdly high prices are serious, the most obvious one being that U.S. citizens simply cannot afford the drugs they need. Furthermore, the high costs also lead insurance companies to drive up their deductibles and co-payments. In a survey from Kaiser Family Foundation, more than 40% of employers charge a $1,000 or more deductible. Similarly, those with Obamacare plans also often pay deductibles of hundreds or thousands of dollars. And even after employees have used up their deductibles, they are facing increasingly high co-payments that are meant to discourage them from purchasing expensive drugs. In the aftermath, many Americans are left defenseless against the high costs, leading them to wonder how they will afford these drugs they so need.

The higher drug costs in the U.S. can be somewhat attributed to the long patent period that the FDA grants to drug makers. This lowers competition in the drug market, makes it more difficult for generic drugs to be made, and, as a result, increases prices. Another problem that drives up prices is the negotiations that occur between pharmaceutical firms and insurers to set the price of a drug. One potential solution to this problem is allowing Medicare to negotiate with pharmaceutical firms to drive prices back down. Drug companies claim that lowering prices of drugs will lower funding for research and development; however, it has recently been called into question whether the high costs can really be justified by such exorbitant R&D costs. As a result, "pharmaceutical cost transparency" bills have been passed in numerous states in the past year, aiming to reveal the true costs of producing a drug. These bills have the potential to prove that drug prices are unnecessarily high, but for prices to actually decrease, further action needs to be taken.

In the midst of presidential election season, rising prices of prescription drugs has become a major topic of discussion. In fact, a survey recently revealed that rising prescription drug prices was the No. 2 health issue that Americans felt needed to be addressed. In response, both Bernie Sanders and Hillary Clinton have recently released proposals to drive down prescription drug prices. Clinton aims to introduce monthly and annual caps on out-of-pocket payments and allow Medicare to negotiate drug prices. She also proposes requiring drug companies that get tax money to invest in R&D. Sanders has taken a more bold stance by advocating a single-payer health care system and proposing imports of prescription drugs from Canada, where prices are much lower. Although these two proposals are very different, they both have the same goal: lowering prescription drug costs in the U.S. This health care issue needs to be addressed, as costs for Americans are rising sharply, and health care costs for the government are continuing to increase.