Prescription Drugs

New Approaches to Managing High-Cost Drugs

June 23, 2017

Doctor's hand filling out a prescription and pointing to the pills to show the high cost of prescription drugs.

Prescription drugs are critical to any effective healthcare system, but in the U.S. they are also a growing financial burden on patients, employers and care providers, many of whom struggle to keep up with their high costs. According to separate reports from the Medicare Payment Advisory Commission and the IMS Institute for Healthcare Informatics, prescriptions accounted for a fifth of all health-related expenditures in 2015. The Altarum Institute has also estimated that they are the fastest growing slice of that pie.

Specialty drugs have fueled sharp annual increases, 13.1 percent just from 2013 to 2014, in spending on medication this decade. For example, a year’s supply of the most effective medicines for chronic conditions such as HIV, hepatitis C and certain cancers now often exceed the nation’s median GDP per capita. AARP has reported that while almost half (49 percent) of Americans have taken one or more prescription drugs in the past 30 days, 19 percent have also skipped or cut in half some of their doses, in order to save money on refills.

The Main Causes of High Drug Prices

Why are drugs so expensive in the U.S.? There are several intersecting causes that reinforce each other and drive up prices:

  • Opaque pricing: Relatively little information is available about launch price formulation, related R&D expenses or the reasons for price increases, especially of older medications. Consumers also have limited insight into the various intermediaries involved in price setting, which is rarely the product of direct negotiations between insurers and manufacturers.
  • Patent laws: The U.S. patent system allows for substantial delays in the production of generics and biosimilars, as well as the attainment of additional patents for slightly reformulated medicines (e.g., extended-release versions). Patent estates covering numerous similar compounds may also drive up costs by limiting competition.
  • No negotiation: Medicare is prohibited by law from negotiating with manufacturers on drug prices. As a result, there are effectively no price controls or payers with enough clout to bring down prices, so medications can be priced at whatever level the market will currently bear.

Fresh Approaches for Bringing Down Drug Costs

The Food and Drug Administration could require manufacturers to reveal the true costs of R&D during the approval process. Additional data about the long-term impact on prices of drug coupons and direct-to-consumer advertising may also be useful in determining how drug pricing could become more streamlined, realistic and in sync with actual utility.

Value-based formularies (VBF) are another route for better understanding how drug prices align with clinical value for patients. One Seattle-based insurer developed a VBF in 2008 and 2009 that assessed the clinical effectiveness, safety, cost and results of each service, with the goal of placing drugs into a 4-tier system with different copays. The pilot of this VBF decreased the plan’s monthly costs by 11 percent after targeting popular medicines for treating hypertension, hyperlipidemia and diabetes.

With greater transparency across approvals and formularies, competition may be easier to encourage, as well. A more empowered FDA could update its rules on sample sharing to accelerate the development of generics and biosimilars. Moreover, the Orphan Drug Act of 1983 could be overhauled to incentivize value-oriented treatments for rare diseases.

Out-of-the-Box Ideas for Improving Rx Accessibility

Drug Utilization Review (DUR) is another useful tool for improving prescription drug utilization and lowering prescription drug costs for healthcare providers. DUR assesses the necessity and effectiveness of prescribed drugs for treating patients’ conditions. It can be performed prospectively, concurrently and retrospectively. In some agencies, like Medicaid, DUR is conducted in a two-phase process. The prospective phase screens for issues including drug-disease contraindication, incorrect dosage, clinical misuse or abuse, and more. The retrospective phase involves periodic examinations of claims to identify patterns of fraud, abuse and unnecessary care.  An effective DUR program can mitigate rising prescription drug costs while also ensuring that appropriate and necessary healthcare is delivered to the patient.

At Advanced Medical Reviews (AMR), a leading independent review organization, pharmacy benefit and drug utilization reviews aim to ensure that prescribed medications are needed and provide a benefit to the course of treatment. AMR’s belief statement- We believe every patient should receive quality healthcare- is a guiding principle behind how they process cases. As Leah Williams, Reviewer Relations Manager, notes, “We focus on the patient and the desired outcome while ensuring the right drug, in the right amount, provides the intended treatment.”

A more controversial solution for improving prescription drug availability is allowing non-FDA approved drugs to be imported into the United States. While this option does have the potential to improve price competition and expand accessibility to less-expensive prescription drugs, it has been met with great opposition from pharmacy trade groups. Both the National Association of Chain Drug Stores and the American Pharmacists Association assert that this type of legislation “would lead to an influx of unsafe drugs.” The FDA and the Canadian government have also expressed concerns over expanding imports increasing the risk of counterfeit drugs in the supply chain.

More Affordable Drugs for Everyone

Everyone deserves access to high-quality care, including prescription drugs. By evaluating specific treatments for effectiveness and cost (via institutions such as VBFs), increased transparency into pricing, more direct price negotiations, and accelerated processes for developing low-cost medicines, the health sector can control expenses and ensure that beneficial treatments are more accessible to patients.


New Approaches to Managing High-Cost Drugs