Millions of Americans are forced to ration or go without prescription drugs because of their high cost. Yet Congress has so far failed to pass legislation to lower drug prices.
They may have another shot. Drug pricing reforms passed by the House of Representatives last November stalled after Senator Joe Manchin of West Virginia withdrew his support for President Biden’s signature Build Back Better legislation. But last week Senator Manchin said that drug pricing reform is “the one thing that must be done” this year. He is reportedly in talks with the Senate majority leader, Charles Schumer, on a revised spending bill that would address high prescription drug prices, although the success of the negotiations is far from assured.
Details of the renewed attempt to rein in drug costs remain unknown but could mirror the provisions that were included in the Build Back Better Act. These include allowing Medicare to negotiate prices for some top-selling drugs, limiting price increases once drugs are marketed and fixing the broken Medicare Part D benefit that saddles some seniors with unaffordable out-of-pocket costs.
This would be a major improvement over the current situation, in which brand-name manufacturers set and raise prices as they please. However, these provisions do not go far enough in curbing the prices of new drugs. Build Back Better would have excluded drugs from price negotiation for at least nine years after market approval (13 years for complex biologic drugs), meaning manufacturers would still be allowed to set unlimited prices for newly marketed drugs.
This is a glaring issue because prices for new drugs are skyrocketing. In a new analysis published in The Journal of the American Medical Association, we found that average prices for newly marketed prescription drugs in the United States grew by 20 percent per year from 2008 to 2021, amounting to a tenfold increase in just over a decade. In 2020 and 2021, nearly half of new drugs were priced at more than $150,000 per year, compared with fewer than 10 percent of drugs introduced at this price level in 2008.
This trend outpaces the 1 to 3 percent annual inflation for other health care services. The rapid growth in prices is only partly attributable to the introduction of more complex medicines, such as injectables and biologics, or drugs focused on treating rare diseases. Even after accounting for shifts in the types of drugs being introduced and discounts provided by manufacturers, we found that prices for new drugs increased by 11 percent per year.
The barometer for what constitutes an acceptable price has apparently grown by orders of magnitude. Three commonly used, once-a-day oral medications to treat Type 2 diabetes exemplify the problem. In 2009 saxagliptin, known by the brand name Onglyza, entered the market at roughly $5 per pill. Five years later, empagliflozin (Jardiance) was introduced at over $10 per pill, and in 2019 semaglutide (Rybelsus) kicked off at over $25 per pill, for an annual cost of almost $10,000. In a decade, the price of new oral diabetes treatments increased fivefold.
Other developed countries broker prices for new drugs soon after the drug is approved for marketing. For example, Canada, France and Germany negotiated with manufacturers the price of each newly approved drug, based on the clinical benefits it provides compared with other available treatments. With these negotiations, other countries pay less than half as much as people in the United States do for the exact same drugs.
Price negotiations need not impair or delay access to treatments. In Germany, for instance, drug manufacturers can freely market their medicines for one year while negotiations are underway, and 98 percent of drugs offering a benefit over existing treatments continue to be available after the negotiated price is set.
Negotiating drug prices will not harm innovation. In fact, the status quo of allowing drug companies to freely set prices incentivizes development of many products that do not offer important therapeutic advances. These less innovative drugs offer low financial risk to manufacturers because they are based on existing products or work via similar biochemical pathways. The pharmaceutical industry has pushed a Congressional Budget Office estimate that lowering drug prices might lead to marginally fewer new drugs over the next several decades, but the report says nothing about which types of drugs would be affected. With new drugs, quality is at least as important as quantity. Shifting toward paying for commensurate drugs to their added therapeutic value could promote the development of more drugs that offer meaningful benefits to patients.
Efforts to lower drug prices have always faced stiff opposition from the pharmaceutical industry, which has lobbied aggressively to avert and scale back congressional reforms. Uninhibited US prices have, after all, allowed the pharmaceutical industry to become one of the most profitable sectors in the US economy. Yet instead of investing most of their profits in innovation, large drug companies spend more on stock buybacks and marketing. Possibly in part because of this lobbying effort, the proposed reforms that Democrats championed last year already were a pared-back version of their party’s previous drug pricing proposals.
In the absence of federal reforms, states have started taking action. It is still too early to measure the impact of these policies, which include setting up affordability boards tasked with setting upper payment limits for certain drugs. But with Medicare accounting for nearly one-third of prescription drug spending in the United States and many private insurance plans escaping state regulation, federal reforms are needed.
In the meantime, many patients struggle to afford necessary medications. For seniors with Medicare, some cancer therapies cost patients more than $10,000 per year. And these high costs lead patients to not fill or to discontinue important medications or face mounds of debt.
Democrats in Congress might have only a few months left in which they can pass legislation with a simple majority. They must act now to lower drug prices. This time around, lawmakers cannot ignore the fact that prices for new drugs are rising by 20 percent each year. Allowing Medicare to negotiate prices for newly marketed drugs would apply the brakes to this runaway train.
Benjamin N. Rome is an instructor in medicine at Harvard Medical School. Aaron S. Kesselheim is a professor of medicine there. Both are faculty members in the Program on Regulation, Therapeutics and Law in the division of pharmacoepidemiology and pharmacoeconomics at Brigham and Women’s Hospital. Alexander C. Egilman works as a research assistant in the program.
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