The Need to Treat the Ailing U.S. Pharmaceutical Pricing System

Prescription Bottle
Prescription drug prices in the U.S. are reaching prohibitive levels for many Americans. It’s crucial for health care leaders to stay ahead of the curve with these issues so they can position their organizations for success and provide the best care for patients.

Prescription drug prices in the U.S. have been rising at an alarming rate, contributing to the nation’s high health care costs. This concerns policy makers at the state and federal levels, prompting exploration of new options to get a better handle on costs while maintaining Americans’ access to pharmacological innovations.

Putting Drug Prices into Context

“Pharmaceuticals are one of the fastest-growing parts of health care spending,” explains John E. McDonough, DrPH, MPA, Professor of the Practice of Public Health at the Harvard T.H. Chan School of Public Health. McDonough also serves as the Program Director of the Harvard executive education program, Preparing for What’s Next in U.S. Health Reform. This course helps physician leaders and health care executives stay abreast of key health policy developments—including rising drug costs—to position their organizations for success.

Increased Prescription Usage in the U.S.

The latest estimates from 2015 place pharmaceutical costs at about 17 percent (about $457 billion) of all health care expenditures, and this amount is expected to continue to escalate if no interventions are put into place.

Other factors also contribute to overall U.S. pharmaceutical spending, according to Preparing for What’s Next in U.S. Health Reform faculty member Aaron S. Kesselheim, MD, JD, MPH. Kesselheim is an Associate Professor of Medicine at Harvard Medical School and Faculty in the Division of Pharmacoepidemiology and Pharmacoeconomics at the Department of Medicine at Brigham and Women’s Hospital.

A 2015 RAND Corporation study shows the Affordable Care Act added health insurance for 16.9 million persons in the U.S., resulting in many more people having access to prescription medications. Kesselheim says that while this helps explain some increases in utilization, it doesn’t tell the entire story.

Another major factor is that drug costs have risen steeply for several years. Some employers estimate that 25 percent of their overall health spending is for employees’ drug costs. And existing drug prices are continuing to rise, while new drugs come onto the market at higher prices than ever before, Kesselheim says.

Americans do not consume more drugs than their non-U.S. counterparts, yet prices can be 80-150 percent more in the U.S. than elsewhere for identical drugs yielding the same results.

Adding Up the Factors Driving Pharmaceutical Pricing

These factors translate into U.S. drug prices being disproportionately higher (as much as double) than in other high-income countries. Americans do not consume more drugs than their non-U.S. counterparts, yet prices can be 80-150 percent more in the U.S. than elsewhere for identical drugs yielding the same results.

Higher drug pricing in America is sustained by monopolies granted by the government to brand-name manufacturers through patents, allowing manufacturers to set prices without regard to the value the product provides to patients.

The U.S. also permits different drug prices for different audiences. In addition, the supply chain is complex, with pharmacies often purchasing drugs through pharmacy benefit-management companies, which negotiate pricing with pharmaceutical companies and add more costs. Further, Medicare and Medicaid have limited ability to negotiate drug-pricing arrangements, resulting in higher costs.

What This Means for Patients

Patients often are stuck between a drug they need and high prices they can’t afford, Kesselheim stresses. A good example is how insulin prices have jumped over ten years.

“Pharmaceutical companies spend more on lobbying in the U.S. than any other industry. This is a major challenge,” Kesselheim says, when trying to implement change.

One out of every four patients reports not filling a prescription today for themselves or a family member due to cost.

The Problem of Medication Noncompliance

The bottom line is that high drug prices contribute to the problem of medication non-adherence among American patients. “One out of every four patients reports not filling a prescription today for themselves or a family member due to cost,” Kesselheim stresses, worsening poor outcomes, such as increased mortality rates for some drugs.

The problem has caught the attention of legislators in all 50 states, some of whom are trying to take action. “When we talk about lowering drug prices, we are trying to ensure that drugs are priced reasonably given payers’ budgets, and consistent with the value they provide,” Kesselheim says.

Taking Action on the State and Federal Levels

At the federal level, the Trump administration, under Health and Human Services secretary Alex Azar, is seeking to address the problem, McDonough says.  In the current climate with a divided U.S. Congress, “drug prices are in the limelight and cutting across party divisions to garner bipartisan support for policies to benefit people seeking care,” he stresses.

Solutions being explored at state and federal levels include enabling Medicare to negotiate drug prices based on the value they provide, requiring pharmaceutical makers to justify their pricing, preventing drug companies from delaying the entry of generic drugs, reducing patient cost sharing for medications, and creating a commission to review drug prices.

Pharmaceutical companies spend more on lobbying in the U.S. than any other industry.

Looking to the Future to Contain Rising Health Care Costs

In spite of Congressional gridlock, McDonough believes that significant progress is possible over the next two years to control pricing. He says it’s important to remember that drug prices are just one piece of a bigger picture.

“Since 2014, health care leaders have been facing a new level of cost pressure,” he says. “Pharmaceuticals are the most acute manifestation of this crisis, and the problems go above and beyond drugs.” Leaders need to keep on their radar staying on top of overall medical care delivery reform in the U.S., and strategies to accomplish this ambitious goal, as well as tracking progress on health insurance for the U.S. population.

The Need for Leaders to Stay Ahead of the Curve

In Harvard’s Preparing for What’s Next in U.S. Health Reform, McDonough says participants can explore these issues and much more to stay ahead of the curve. “When it comes to health care policy at the federal and state levels, change is always moving rapidly.”

Those most successful on the frontlines of care are those who can look beyond the headlines to perceive what the current—and future—situation means, he says, to position themselves and their organizations for success in the ever-evolving world of health policy.


Harvard T.H. Chan School of Public Health offers Preparing for What’s Next in U.S. Health Reform, which offers key lessons involving health reform from the nation’s leading policy experts.