Why Our Prescription Drugs Cost So Much

Nothing stops drug companies from charging the highest price the market will bear

AARP 2018

Why Drugs cost so much

SAM KAPLAN

En español | PRESCRIPTION DRUG PRICES in America are among the highest in the world. On the campaign trail, President Trump said drug companies were “getting away with murder.” Is that true? Or are these firms the beneficiaries of a system that turns a blind eye to excessive profit-making at the expense of society?

In this report, we explain in simple, clear terms why drugs cost what they do. We also examine the drug-price debate in Washington, explain how the complicated business of medicine works and give you ways to save money at the pharmacy.

AARP stands by your side to help lower drug costs and make sure all Americans over 50 have affordable access to the medicine they need to live their fullest lives. — Robert Love, editor in chief


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For Susan Goodreds,Repatha has been as close as you can get to a miracle drug. The 74-year-old resident of Delray Beach, Fla., has a hereditary disorder that causes dangerously high cholesterol levels. Without medicine, her “bad” cholesterol count was in the 300s; statin drugsbrought the count to about 220. With Repatha, it has fallen to 35. 

The catch is, simply, cost. Repatha, a new medicine that made headlines in March when a large-scale study confirmed some of its beneficial effects, costs $14,000 annually, or nearly $1,200 for each month’s injection. Even with insurance, Goodreds pays $4,650 a year for it. Add in other prescription drugs and medical costs, and her yearly health bill is $13,500 — equal to most of her fixed income. “I’m faced with some hard decisions about whether to stay on the drug,” Goodreds says. “I still have a lot of things I want to do with my life.”


If you are concerned about the high cost of drugs, let your member of Congress know by calling 844-453-9952 toll free.


Confusion, anxiety and anger over the high cost of medicine has been on the rise for more than a decade. But even as the chorus of criticism has grown louder, the price of pharmaceutical products in the U.S. continues to skyrocket.

Consider:

  • The cost of Bavencio, a new cancer drug approved in March, is about $156,000 a year per patient.
  • A new muscular dystrophy drug came on the market late last year for an eye-popping price of $300,000 annually.
  • In 2016, the FDA appproved Tecentriq, a new bladder cancer treatment that costs $12,500 a month, or $150,000 a year. 
  • Even older drugs that have long been on the market are not immune: The cost of insulin tripled between 2002 and 2013, despite no notable changes in the formulation or manufacturing process. And the four-decade-old EpiPen, a lifesaving allergy medication, has seen a price hike of 500 percent since 2007. Public outrage this past winter over its price tag ($609 for a package of two injectors) helped to speed up the arrival of lower-cost generic variations to the market.

The issue of high drug prices came up frequently in the recent election cycle, and in a speech in Kentucky in March, President Trump called drug prices “outrageous.” Increasingly, Americans are asking the same question of pharmaceutical companies: Why? 


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VIDEO: Cancer patient Heather Block says Congress needs to protect seniors and all taxpayers from price gouging by big drug companies.  


The Ways of Drug Pricing

“The simple answer is because there’s nothing stopping them,” says Leigh Purvis, director of health services research for the AARP Public Policy Institute. 

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Other countries drive a much harder bargain with drug companies. In contrast, the U.S. allows drug companies to pretty much set their own prices. 

And as we all know, when demand is high for a product, companies often raise prices. That’s exactly the case for many prescription drugs.

Tens of millions of Americans suffer from conditions like high cholesterol, high blood pressure and diabetes, all of which can be treated successfully with prescription medications.

More recently, drugmakers have developed game-changing therapies for a host of serious illnesses, including multiple sclerosis, hepatitis C and several cancers. That means people are living longer lives.

The supply of a newer medicine, however, is controlled entirely by the drug manufacturer that holds the patent rights. That gives the manufacturer a monopoly on the drug for the 20-year life of the patent. During that time, it is free to raise the price as frequently and as much as the market will bear. An example: Last February, the price of Evzio, an auto-injected drug that is used to treat opioid overdose, jumped to over $4,000 — from just $690 in 2014 — just as demand for the medicine was quickly rising. 

You may not realize the high cost of medicine if you’re relatively healthy and have insurance to cover those occasional needs for, say, a week’s course of antibiotics. But if you or someone in your family develops a chronic or serious condition, prepare for sticker shock — even if you have insurance. 

The profits

When Janet Huston was diagnosed with a rare stomach cancer in 2009, surgery seemed to offer a cure. But a year later the cancer — called gastrointestinal stromal tumor or GIST — returned with a vengeance. The 66-year-old retired lawyer is now taking an arsenal of drugs, including Gleevec, to contain her tumor and control its symptoms. But the medicines that allow her to lead “a somewhat normal life” cost her more than $17,000 a year, including about $12,000 for Gleevec.

“That’s about 30 percent of my total income,” says Huston, who lives in Des Moines, Iowa, on Social Security and a modest pension from her years as an attorney. “I don’t always take my medication as I should, especially in the months when income taxes and property taxes come due,” she admits. 

It’s not just people like Huston who suffer financially. “High prescription drug prices affect everyone,” Purvis says. “Even if patients are fortunate enough to have good health care coverage, higher prices translate into higher out-of-pocket costs, premiums and deductibles. And greater spending by taxpayer-funded programs like Medicare and Medicaid are eventually passed along to all Americans in the form of higher taxes, cuts to public programs or both.” 

Put even more simply: One reason that your health insurance rates are high is because you are subsidizing other people’s high-cost medicines. For example, imagine the euphoria if a company developed a breakthrough treatment for Alzheimer’s disease. Let’s say it costs $60,000 a year per patient, and it gets prescribed to every American with the disease. To pay for the medicine,  insurance premiums for each privately insured person in the U.S. would increase by more than $140 per month, based on a new calculator developed by the Biotechnology Innovation Organization. 

The Drug Cost Debate at a glance 2

AMY SHROADS

A Contorted Marketplace

If you needed a new TV, you would do some research, shop around and pick the best model at the price you can afford. That creates competition that pushes prices down. The market for prescription drugs doesn’t work that way. For example, you don’t make the product choice — your health care provider does. And doctors and nurse practitioners often do so in the dark: There’s little information available to compare one drug to another. The Food and Drug Administration (FDA) does not require drug companies to prove that their new products are better than existing products. So many physicians write prescriptions for the drugs they’re most familiar with — and that information often comes from manufacturers themselves. Drug companies spend $24 billion a year marketing to health care professionals. 

Other factors that cause the drug market to be skewed include:

Patent law. Pharmaceutical companies have become adept at coming up with strategies to extend their monopoly on a drug beyond the expiration of its original patent. For example, they can seek approval for a “new” product that is a slight variation on the original, such as extended release formulations, or by creating therapies that combine two existing drugs into one pill. “The longer that a drug company is able to maintain its monopoly, the longer it can continue to charge whatever it wants for its product,” Purvis says.

Limits on Medicare. One of the largest purchasers of prescription drugs, Medicare is blocked by law from negotiating prices. When Congress was debating the law that created Medicare Part D (which took effect in 2006), lobbyists from the pharmaceutical industry convinced legislators that giving Medicare negotiating power would amount to price control. 

Compare Medicare with the Veterans Health Administration (VHA), the part of the Department of Veterans Affairs that handles medical care. The VHA does have the ability to negotiate drug prices. As a result, it pays 80 percent less for brand name drugs than Medicare Part D pays, according to a 2015 report by Carleton University in Ottawa, Ontario, and Public Citizen, a public advocacy group. The VHA gets its negotiating power from its formulary, a list of prescription drugs that it will cover. Medicare and Medicaid, by contrast, are required to cover almost all drugs approved by the FDA, regardless of whether a cheaper, equally effective drug is available.   

Mutiple middlemen. When you pick up a drug at the pharmacy, you often don’t know what its real price is — that is established between the manufacturer and your insurer. You just pay the agreed-upon copay rate. Today, insurance companies rarely negotiate prices directly with drug manufacturers. Instead, most insurers work with pharmacy benefit managers, who negotiate rebates and discounts on the company’s behalf — often in exchange for preferential placement on their list of covered medicines. Pharmacy benefit managers add yet another participant to what is already a complex system.

The Drug Cost Debate at a glance 1

AMY SHROADS

The R&D Explanation

The pharmaceutical industry offers several responses to the charges of excessively high prices. First, it notes that prescription drugs account for just 10 percent of  the nation’s health care costs; by comparison, 32 percent of costs go to hospital care, according to a 2016 report from Medicare.

It also notes that an open market means that “patients in the U.S. can access the most innovative treatments far earlier than any other country,” says Robert Zirkelbach, executive vice president at the Pharmaceutical Research and Manufacturers of America (PhRMA), the industry trade group. For example, data from PhRMA show that patients in Europe wait an average of nearly two years longer to get access to cancer medicines than American patients. 

But the industry’s primary defense of rising medicine prices are the high costs associated with drug development. 

Drug companies spend over 10 years and up to $2.6 billion bringing a drug to market, according to a 2016 Journal of Health Economics article based on research by the Tufts Center for the Study of Drug Development (which gets a minority of its operating funds from the pharmaceutical industry). Of that amount, $1.4 billion is actual costs — items like salaries, labs, clinical-
trial expenses and manufacturing. The remaining $1.2 billion is “capital costs”: what the company sacrifices by investing time and money in an unproven drug. Some experts dispute these numbers, saying they overstate the true costs.

Even after accounting for their research investments, however, drug companies are among the most profitable public businesses in America. And an analysis from the research company Global Data revealed that 9 out of 10 big pharmaceutical companies spend more on marketing than on research. Most of them also have big budgets for lobbyists to ensure the laws continue to work in their favor. The Center for Responsive Politics puts the number of pharmaceutical industry lobbyists at 804 in 2016.

Further, some drug companies are moving away from doing all of their research in-house and instead are buying smaller companies with promising products. About 70 percent of industry sales come from drugs that originated in small companies, up from 30 percent in 1990, according to a Boston Consulting Group survey. 

In addition, drug companies increasingly focus on products that can generate the highest profits. The majority of drugs approved by the FDA are now expensive specialty drugs. Many drug companies are also pursuing “orphan drugs” — medicines targeting diseases that afflict fewer than 200,000 people. These medications cost an average of $140,000 a year. The catch: Many orphan drugs eventually receive additional approvals as a treatment for other conditions, dramatically increasing the market for the drug. 

The government supports orphan drug development with tax breaks and other incentives. In 2016, the pharmaceutical industry netted $1.76 billion in orphan drug tax credits.

“People are concerned about drug prices; more are being forced to make trade-offs between paying for their drugs and for food or rent”— Leigh Purvis, director of health services research for the AARP Public Policy Institute

Meanwhile, just five of the top 50 drug companies are spending money on much-needed new antibiotics — largely because these drugs aren’t lucrative, the AARP Bulletin reported in November 2016. “In most cases, people only need to take an antibiotic for a couple of weeks to get rid of an infection. Compare that to medications for chronic conditions — which people go on taking every day for years — and you can understand why drugmakers aren’t particularly interested,” says Erik Gordon, a professor at the University of Michigan Ross School of Business.  

There is nothing illegal with any of this: As publicly owned corporations, pharmaceutical firms focus on their bottom line. “Pharmaceutical executives say they have to be more aggressive to satisfy Wall Street,” says John Rother, executive director of the Campaign for Sustainable Rx Pricing.

But there’s evidence that drug companies will respond if pressured to lower prices. One example is patient-assistance programs. Kristin Agar, a 65-year-old clinical social worker in Little Rock, Ark., was diagnosed with lupus in 2009. Her doctor prescribed Benlysta, the only medication specifically approved for lupus. Her insurer would pay 80 percent, about $2,500 per infusion, but Agar had to pay the remaining $450 per dose.

“I couldn’t afford that,” says the self-employed professional. But when she applied for assistance, she was told she made too much money. “That just infuriated me,” she says. Agar appealed the decision — and got her copay covered by the drugmaker for two years. 

But a consensus is building that more must occur. “People are concerned about drug prices; more are being forced to make trade-offs between paying for their drugs and for food or rent,” says AARP’s Purvis. “The trends that we’re seeing are simply unsustainable.”

There is nothing illegal with any of this: As publicly owned corporations, pharmaceutical firms focus on their bottom line. “Pharmaceutical executives say they have to be more aggressive to satisfy Wall Street,” says John Rother, executive director of the Campaign for Sustainable Rx Pricing.

But there’s evidence that drug companies will respond if pressured to lower prices. One example is patient-assistance programs. Kristin Agar, a 65-year-old clinical social worker in Little Rock, Ark., was diagnosed with lupus in 2009. Her doctor prescribed Benlysta, the only medication specifically approved for lupus. Her insurer would pay 80 percent, about $2,500 per infusion, but Agar had to pay the remaining $450 per dose.

“I couldn’t afford that,” says the self-employed professional. But when she applied for assistance, she was told she made too much money. “That just infuriated me,” she says. Agar appealed the decision — and got her copay covered by the drugmaker for two years. 

But a consensus is building that more must occur. “People are concerned about drug prices; more are being forced to make trade-offs between paying for their drugs and for food or rent,” says AARP’s Purvis. “The trends that we’re seeing are simply unsustainable.”

These Common Drugs Increase Risk of Dementia

Disease can occur up to 20 years after exposur

Pills in cups

Incidences of dementia were found up to 20 years after exposure to a class of common drugs called anticholinergics.

En español | A common class of drugs known as anticholinergics, used to treat a number of illnesses such as depression and Parkinson’s disease, may also increase a patient’s risk of dementia by 30 percent, according to a new study published in the British Medical Journal. Anticholinergic drugs are also used to treat gastrointestinal disorders, urinary incontinence, epilepsy and allergies. It is estimated that 20 to 50 percent of Americans 65 and older take at least one anticholinergic medication

The research team analyzed more than 27 million prescriptions, as recorded in the medical records of 40,770 patients ages 65 to 99 who were diagnosed with dementia, and compared them with the records of 283,933 older adults without dementia. The researchers found greater incidences of dementia among patients prescribed anticholinergic antidepressants, urological medications and Parkinson’s disease medications than among older adults who were not prescribed these drugs. These incidences of dementia were found up to 20 years after exposure to the drugs. It was noted that anticholinergic drugs used for gastrointestinal and cardiovascular issues such as asthma are not associated with later incidences of dementia.   

“Many people use anticholinergic drugs at some point in their lives, and many are prescribed to manage chronic conditions leading to potentially long exposures,” researchers stated. “Clinicians should continue to be vigilant with respect to the use of anticholinergic drugs and should consider the risk of long-term cognitive effects, as well as short-term effects, associated with specific drug classes when performing their risk-benefit analysis.”

Heart Association Raises Its Blood Pressure Guideline

46 percent of U.S. adults are now considered to have hypertension

by William E. Gibson, AARP, November 14, 2017 | Comments: 9

Blood Pressure Standard

PETER DAZELEY/GETTY IMAGES

The AHA’s new guideline is designed to encourage people to take earlier steps to control their blood pressure.

Under a newly released scientific guideline, nearly half of American adults could be considered at risk of major health problems because of high blood pressure, the American Heart Association reported on Monday.

Blood pressure readings of 130 as the top number or 80 as the bottom number now are considered to be high. High readings had been defined as 140/90.

Applying the new standard, 46 percent of American adults have high blood pressure, far more than the 32 percent under the previous definition. A reading of less than 120/80 still will be considered normal, but levels at or above that will be classified as “elevated.”

The AHA’s new guideline is designed to encourage people to take earlier steps to control their blood pressure, a major risk factor for heart disease and stroke, the leading causes of death.

“Yes, we will label more people hypertensive and give more medication, but we will save lives and money by preventing more strokes, cardiovascular events and kidney failure,” said Kenneth Jamerson, professor of internal medicine and a hypertension specialist at the University of Michigan Health System. He is among 21 experts on the guideline-writing committee, the AHA said.

“If you are going to put money into the health care system,” Jamerson said, “it’s to everyone’s advantage if we treat and prevent on this side of it, in early treatment.”

Congress… keep the Senior People 1st!

Americans oppose efforts to increase prescription drug costs for seniors

Man looking at pills

GETTY IMAGES

En español | The giant pharmaceutical lobby is pressing Congress to roll back a recent budget deal provision that gives some financial relief to millions of Medicare beneficiaries with high prescription drug costs.

The deal that federal lawmakers passed in February is supposed to help lower prescription drug costs for older Americans by requiring that brand-name drug companies pick up more of the cost of their medicines for beneficiaries who are in the Part D “donut hole.”

Medicare Part D enrollees find themselves in the donut hole when their total spending on medicines reaches a certain threshold, which had been set at $3,820 for 2019. Once a beneficiary reaches that limit, he or she enters the donut hole, where they pay 25 percent of costs for brand-name drugs and 37 percent of the cost of generics. Beneficiaries continue to pay this share until their out-of-pocket spending reaches $5,100. Once they hit that limit, they exit the coverage gap and enter catastrophic coverage, where they pay no more than 5 percent of their drug costs for the rest of the year.

The coverage gap was scheduled to close in 2020, but under the bipartisan budget deal, that is supposed to happen in 2019. In addition, Congress required brand-name drug manufacturers to pay more of the cost of their medicines for beneficiaries in the donut hole. Currently, these drugmakers pay 50 percent of the cost of their brand-name drugs for enrollees in the gap. Under the budget law, starting in 2019 they are supposed to pay 70 percent. The higher discounts would help lower drug costs for seniors, reducing the amount they have to pay out of pocket to reach catastrophic coverage.

The pharmaceutical industry has been trying to overturn the agreement since it was passed and has been lobbying lawmakers in both parties. A recent ad from the drug lobby claims the budget deal “threatens” Medicare’s “successful competitive structure.”

But AARP and other advocates for affordable drug prices say the Pharmaceutical Research and Manufacturers of America (PhRMA) is trying to get Congress to overturn the donut hole deal for increased profit.

“Big drug companies want to boost their profits by raising Medicare drug costs,” says Nancy LeaMond, AARP executive vice president and chief advocacy and engagement officer. “Seniors have worked hard and paid into Medicare their whole lives. It would be shameful to raise their costs when so many are struggling.” This is yet another way, AARP officials say, that drug companies want to increase profits while forcing American consumers to continue paying the highest drug prices in the world.

The pharmaceutical industry is now targeting the lame duck session of Congress in its efforts to break the donut hole deal. Lawmakers have to pass a budget bill by Dec. 7 to prevent a partial shutdown of the federal government. A spokesman for House Democratic leader Nancy Pelosi told Axios, “Republicans are just desperate to get their multibillion-dollar giveaway to Big Pharma done before a Democratic majority takes over the House” in January.

AARP members across the country are reaching out to Congress and the president to demand that they stand by the donut hole deal and their constituents. In last week’s midterm elections, 56 percent of those who voted were over age 50. Throughout the campaign, health care  — especially the cost of prescription drugs — was cited as a key concern among those voters

Rude hiring tactics from Home Health Care Companies

Home Care Companies Increase Use of Noncompetes, Other Contract Restrictions

By Bailey Bryant | December 2, 2018

For decades, companies have used noncompete clauses to retain top executives and protect trade secrets. But now, similar agreements are becoming more common among low-wage home care workers, which experts say can be a double-edged sword.

As the caregiver shortage continues and the demand for home care increases, restrictive agreements will only become more common, according to Angelo Spinola, a shareholder and attorney who represents home care companies at international labor and employment law firm Littler Mendelson.

“You’re going to have lots of companies [with] lots of clients and a great pipeline of work,” he told HHCN. “The issue [they’ll] have is that they don’t have enough of a labor force to satisfy their client demands, so you’re going to see noncompetes, nonsolicits and direct hire provisions.”

Currently, the latter two options are most common among Spinola’s clients. When presented to caregivers, nonsolicit agreements usually allow them to work for competitors but restrict workers from taking clients or employees with them. Meanwhile, direct-hire provisions are client agreements that require customers to pay the company a fee, usually $5,000 to $10,000, if they hire an agency caregiver directly.

Without that fee, companies are out the money and time spent vetting and matching the caregiver, as well as processing the customer.

As such, Spinola recommends all home care agencies use direct-hire provisions. Otherwise, customers can cut out companies and hire caregivers directly with no recourse.

“The client says ‘I no longer need your services,’ the caregiver resigns, and then later [the company] finds out the client and caregiver are working together,” Spinola told HHCN. “If there was an agency fee of $6 an hour, the client may have said to the caregiver, ‘I’ll pay you an additional $3 an hour and keep the other $3, and we won’t use the agency for anything.’ ”

Companies without direct-hire provisions often come to Spinola’s firm after being burned. But when contractual direct-hire terms are clear from the get-go, agencies have fewer problems, Spinola said. Many direct-hire agreements also include an attorney fee, in the event companies must litigate.

Nonsolicit agreements are another way companies can also protect agency assets without restricting workers’ mobility.

“I think that’s probably the most common trend, with the idea being that the agency is trying to protect the client relationship,” Spinola told HHCN. It prevents caregivers from “being introduced to the relationship and then taking that relationship either independent or to another agency.”

If agreements are violated, caregivers receive cease-and-desist types of letters followed sometimes by requests for damages, which must be proven by the agency.

The problem with noncompetes

While nonsolicits are appropriate at the caregiver level, noncompete agreements, which prevent employees from working for competitors within a certain time frame and region after they leave a job, should be reserved for high-ranking employees with access to critical and confidential trade secrets, Spinola told.

A report by the U.S. Treasury backs up his opinion.Noncompete agreements can “protect trade secrets, reduce labor turnover, impose costs on competing firms, and improve employer leverage in future negotiations with workers,” the report says. But for low-wage workers without access to trade secrets, noncompete agreements reduce employees’ leverage in wage negotiations and offer fewer opportunities for career advancement, it explains.

“Our concern is that noncompete agreements could force workers more and more into poverty because they would have fewer options,” said Robert Espinoza, vice president of policy at PHI, an advocacy group for direct care workers. “When direct care workers make $11 an hour and many providers don’t offer full-time hours to give workers a decent living standard, these workers often have no other choice but to seek other jobs to bolster their incomes.”

Rather than retain talent, he worries noncompete agreements could prevent workers from entering the home care industry altogether.

“Why would they enter the sector?” Espinoza said. “That’s especially troubling in a time in which providers are increasingly struggling with recruitment and retention challenges.”

Such struggles are the very reason restrictive agreements, such as direct-hire provisions, nonsolicit agreements and noncompetes, will become more common in the years to come, according to Spinola.