Prescription Drug Costs a Tough Pill to Swallow

Despite a focus to drive down health care costs in recent years, the potential for savings seems to almost be cancelled out by the rising price of prescription drugs.

We have entered an era in which the “new normal” for drug spending means substantial increases year after year, and there appears to be no end in sight. A primary driver of this trend is specialty drugs, which account for 73 percent of overall medicine spending growth over the past five years. One such example is PCSK9 inhibitors, a new type of cholesterol-lowering drug that costs more than $14,000 per year. Another is the launch price of a new multiple sclerosis drug that runs as high as $65,000 a year.

As staggering as a drug’s introductory price may be, that’s often just the beginning — similar to when stores launch new products on the market at a discount price. Specialty drugs have been known to increase substantially in the subsequent years after their introduction, including those commonly prescribed for older people. Today, specialty drugs for chronic conditions cost more than $53,000 a year on average — three times higher than the average annual Social Security retirement benefit.

Another factor contributing to the high prices is the lack of meaningful competition for expensive biologic drugs. Unlike the five-year delay for generics, the patent period for new biologic drugs is 12 years, during which time manufacturers have a monopoly on the market and can price their products based on “what the market will bear.” While similar drugs (“biosimilars”) may be produced during that time period, there is currently extensive debate over the requirements lower-cost biosimilars must meet before a pharmacist can simply replace a prescribed biologic drug with a biosimilar without contacting the physician.

A second challenge in the biosimilar market is that they are less familiar and may be perceived as less safe than their original counterparts. This same misperception plagued the generic market for many years before gaining widespread acceptance that led to a significant reduction in drug spending.

A key factor of the “new normal” is that drug manufacturers are primarily focused on innovating the types of drugs that can command high prices, which means those targeted to small groups of patients who have unique or rare conditions. Since 2010, more specialty drugs have been in the development pipeline than traditional drugs. In 2014 alone, 27 of the 51 drugs approved by the FDA were specialty drugs.1

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1 Leigh Purvis and Crystal Kuntz. HealthAffairs.org. May 17, 2016. Is High Prescription Drug Spending Becoming Our New Normal?” Accessed June 15, 2016.

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