Prescription costs are a common health care cost
for many people. Prescription costs are influenced by multiple factors
such as patents, stakeholder influence, and marketing expenses. A number
of countries including Canada, parts of Europe, and Brasil use external reference pricing as a means to compare drug prices and to determine a base price for a particular medication.
Definition
Prescription
cost is defined as a cost which the patient has to pay to get medicines
or treatments which are written as directions on prescription by a
prescribers.
The cost is generally influenced by a financial relationship between
pharmaceutical manufacturers, wholesale distributors and pharmacies.
In addition to the financial relationship, each nation has different
systems to control the cost of prescriptions. In US, a pharmacy benefit
manager, a third-party organization, such as private insurances or
government-run health insurances will implement cost containment
programs, such as establishing a formulary, to contain the cost.
In UK, a government agency, the National Institute of Health and Care
Excellence (NICE), will negotiate with pharmaceutical companies to
contain cost of prescription drug. Prescription costs are a regular health care cost for the sick and may mean economic hardship for the underprivileged.
With a healthcare insurance, the patient in US pays co-pay (the amount
the patient must pay for each drugs or medical visit), deductible (the
amount the patient has to pay before the insurance starts sharing the
cost) and co-insurance (the amount the patient has to pay after
deductible) for prescription costs. After reaching the out of pocket maximum, the insurance company will pay 100% of the prescription cost. The amount the patient has to pay depends on the healthcare insurance plan the patient has.
As of 2017, prescription costs range from just more than 15% in
high income countries to 25% in lower-middle income countries and low
income countries.
Drug pricing factors
| Drug | US | Canada | UK | Spain | Netherlands |
|---|---|---|---|---|---|
| Enbrel | $2,225 | $1,646 | $1,117 | $1,386 | $1,509 |
| Celebrex | $225 | $51 | $112 | $164 | $112 |
| Copaxone | $3,903 | $1,400 | $862 | $1,191 | $1,190 |
| Cymbalta | $194 | $110 | $46 | $71 | $52 |
| Humira | $2,246 | $1,950 | $1,102 | $1,498 | $1,498 |
| Nexium | $215 | $30 | $42 | $58 | $23 |
Pricing any pharmaceutical drug for sale to the general public is
daunting. Per Forbes, setting a high ceiling price for a new drug could
be problematic as physicians could shy away from prescribing the drug,
because the cost could be too great for the benefit. Setting too low of a price could imply inferiority, that the drug is too "weak" for the market.
There are many different pricing strategies and factors that go into
the research and evaluation of a future drug’s price with whole
departments within US pharmaceutical companies like Pfizer devoted to cost analysis. Regardless of the pricing strategy the common theme within all factors is to maximize profits.
This chart shows discrepancies in drug pricing in different
countries, which indicates differences in both market conditions and
government regulation. For instance, Canada has federal Patented
Medicine Prices Review Board (PMPRB), which does not set prices of
drugs, but it reviews to determine if the prices are not excessive.
Marketing expenses
A study has placed the amount spent on drug marketing at 2-19 times that on drug research.
Research and development
The table shows research and development statistics for pharmaceutical companies as of 2013 per Astra Zeneca.
| Pharmaceutical company | # of drugs approved | Average R&D spending per drug (in $ Millions) |
Total R&D spending from 1997-2011 (in $ Millions) |
|---|---|---|---|
| AstraZeneca | 5 | $11,790.93 | $58,955 |
| GlaxoSmithKline | 10 | $8,170.81 | $81,708 |
| Sanofi | 8 | $7,909.26 | $63,274 |
| Roche Holding | 11 | $7,803.77 | $85,841 |
| Pfizer | 14 | $7,727.03 | $108,178 |
| Johnson & Johnson | 15 | $5,885.65 | $88,285 |
| Eli Lilly & Co. | 11 | $4,577.04 | $50,347 |
| Abbott Laboratories | 8 | $4,496.21 | $35,970 |
| Merck & Co Inc. | 16 | $4,209.99 | $67,360 |
| Bristol-Meyers Squibb Co. | 11 | $4,152.26 | $45,675 |
| Novartis | 21 | $3,983.13 | $83,646 |
| Amgen Inc. | 9 | $3,692.14 | $33,229 |
Severin Schwan,
the CEO of the Swiss company Roche, reported in 2012 that Roche’s
research and development costs in 2014 amounted to $8.4 billion, a
quarter of the entire National Institutes of Health budget.
Given the profit-driven nature of pharmaceutical companies and their
research and development expenses, companies use their research and
development expenses as a starting point to determine appropriate yet
profitable prices.
Pharmaceutical companies spend a large amount on research and
development before a drug is released to the market and costs can be
further divided into three major fields: the discovery into the drug’s
specific medical field, clinical trials, and failed drugs.
Discovery
The
process of drug discovery can involve scientists determining the germs,
viruses, and bacteria that cause a specific disease or illness.
The time frame can range from 3–20 years and costs can range between
several million to tens of millions of dollars. Research teams attempt
to break down disease components to find abnormal events/processes
taking place in the body. Only then do scientists work on developing chemical compounds to treat these abnormalities with the aid of computer models.
After "discovery" and a creation of a chemical compound,
pharmaceutical companies move forward with the Investigational New Drug
(IND) Application from the FDA.
After the investigation into the drug and given approval,
pharmaceutical companies can move into pre-clinical trials and clinical
trials.
Trials
Drug development and pre-clinical trials focus on non-human subjects and work on animals such as rats.
The Food and Drug Administration
requires at least 3 phases of clinical trials that assess the side
effects and the effectiveness of the drug. An analysis of trial costs of
approved drugs by the FDA from 2015-2016 found that out of 138 clinical
trials, 59 new therapeutic agents were approved by the FDA. These
trials have a medium estimated cost of $19 million US dollars. A single phase 3 trial can cost upwards of $100 million.
- Phase 1 lasts several months and aims to assess the safety and dosage of the drug. The purpose is to determine how the drug affects the body.
- Phase 2 lasts several months to two years and aims to assess the efficacy and side effect profile of the drug.
- Phase 3 lasts 1 to 4 years and aims to continue assessing and monitoring the efficacy and side effects of the drug. Phase 3 aims to determine the risks and benefits of a drug to its intended patient population.
- Phase 4 trials occur after the drug is approved by the FDA and aims to continue monitoring safety and efficacy of the drug.
Of these phases, the phase 3 is the most costly process of drug development. It accounts for about 90 percent of the cost to pharmaceutical companies to develop a medication.
Failed drugs
The
processes of "discovery" and clinical trials amounts to approximately
12 years from research lab to the patient, in which about 10% of all
drugs that start pre-clinical trials ever make it to actual human
testing.
Each pharmaceutical company (who have hundreds of drugs moving in and
out of these phases) will never recuperate the costs of "failed drugs".
Thus, profits made from one drug need to cover the costs of previous
"failed drugs".
Relationship
Overall,
research and development expenses relating to a pharmaceutical drug
amount to the billions. For example, it was reported that AstraZeneca spent upwards on average of $11 billion per drug for research and developmental purposes. The average of $11 billion only comprises the "discovery" costs, pre-clinical and clinical trial costs, and other expenses. With the addition of "failed drug" costs, the $11 billion easily amounts to over $20 billion in expenses. Therefore, an appropriate figure like $60 billion would be approximate sales figure that a pharmaceutical company like AstraZeneca would aim to generate to cover these costs and make a profit at the same time.
Total research and development costs provide pharmaceutical
companies a ballpark estimation of total expenses. This is important in
setting projected profit goals for a particular drug and thus, is one of
the most necessary steps pharmaceutical companies take in pricing a
particular drug.
Stakeholders
Patients
and doctors can also have some input in pricing, though indirectly.
Customers in the United States have been protesting the high prices for
recent "miracle" drugs like Daraprim and Harvoni, both of which attempt to cure or treat major diseases (HIV/AIDS and hepatitis C).
Public outcry has worked in many cases to control and even decide the
pricing for some drugs. For example, there was severe backlash over
Daraprim, a drug that treats toxoplasmosis. Turing Pharmaceuticals under the leadership of Martin Shkreli raised the price of the drug 5,500% from $13.50 to $750 per pill. After denouncement from 2016 presidential candidates Hillary Clinton and Bernie Sanders, Turing Pharmaceuticals decided to reduce the price.
With the recent trend of price gouging, legislators have
introduced reform to curb these hikes, effectively controlling the
pricing of drugs in the United States. Hillary Clinton announced a
proposal to help patients with chronic and severe health conditions by
placing a nationwide monthly cap of $250 on prescription out-of-pocket
drugs.
Research for a drug that is curing something no one has ever
cured before will cost much more than research for the medicine of a
very common disease that has known treatments. Also, there would be more patients for a more common ailment so that prices would be lower. Soliris only treats two extremely rare diseases, so the number of consumers is low, making it an orphan drug. Soliris still makes money because of its high price of over $400,000 per year per patient.
The benefit of this drug is immense because it cures very rare diseases
that would cost much more money to treat otherwise, which saves
insurance companies and health agencies millions of dollars. Hence,
insurance companies and health agencies are willing to pay these prices.
Public policy
Policy
makers in some countries have placed controls on the amount
pharmaceutical companies can raise the price of drugs. In 2017,
Democratic party leaders proposed the creation of a new federal agency
to investigate and perhaps fine drug manufacturers who make unjustified
price increases. Pharmaceutical companies would be required to submit a
justification for a drug with a “significant price increase” within at
least 30 days of implementation. Under the terms of the proposal,
Mylan’s well-publicized price increase for its EpiPen product would fall
below the criteria for a significant price increase, while the 5000%
overnight increase of Turing Pharmaceuticals Daraprim (pyrimethamine)
would be subject to regulatory action.
Patents
Drug developers are able to gain Patent rights to their particular medication. Two patents that are commonly used are process patents and product patents.
These patents contribute to fluctuations in drug pricing. Process
patents only provide developers intellectual claim to the methods in
which the product was manufactured. Comparatively, product patents give
the developer prime control as the "single innovating firm" of that
product. Product patents allow developers to maintain exclusivity of their product for up to a decade. With this exclusivity, the developer can establish a monopoly and determine an appropriate pricing for their product.
Effect of cost on consumers
When the price of medicine goes up the quality of life of consumers who need the medicine decreases.
Consumers who have increased costs for medicine are more likely to
change their lifestyle to spend less money on groceries, entertainment,
and routine family needs. They are more likely to go into debt or postpone paying their existing debts. High drug prices can prevent people from saving for retirement. It is not uncommon for typical people to have challenges paying medical bills. Some people fail to get the medical care they need due to lack of money to pay for it.
Consumers respond to higher drug prices by doing what they can to
save drug costs. The most commonly recommended course of action for
consumers who seek to lower their drug costs is for them to tell their
own doctor and pharmacist that they need to save money and then ask for
advice.
Doctors and pharmacists are professionals who know their fields and are
the most likely source of information about options for reducing cost.
Depending on the country and health policies implemented, there
are also options to search for the most convenient and affordable health
insurance plans without having to consult a healthcare provider or
obtain insurance through the employer. However, those who seek to
purchase insurance individually through the individual market are most
likely to be underinsured and therefore could potentially have a higher
prescription cost.
There can be significant variation of prices for drugs in different pharmacies, even within a single geographical area. Because of this, some people check prices at multiple pharmacies to seek lower prices. Online pharmacies can offer low prices but many consumers using online services have experienced Internet fraud and other problems.
Some consumers lower costs by asking their doctor for generic drugs when available. Because pharmaceutical companies often set prices by pills rather than by dose, consumers can sometimes buy double-dose pills, split the pills themselves with their doctor's permission, and save money in the process
By region
United States
Prescription drug prices in the United States have been among the
highest in the world. The high cost of prescription drugs became a major
topic of discussion in the new millennium, leading up to the U.S. health care reform
debate of 2009, and received renewed attention in 2015. High prices
have been attributed to monopolies given to manufacturers by the
government and a lack of ability for organizations to negotiate prices.
Individuals are able to enroll in health insurance plans, which
often include prescription medication coverage. However, insurance
companies decide which drugs they will cover by creating a formulary.
If a medication is not on this list, the insurance company will usually
not be willing to pay for it. There are also often tiers within this
approved drug list, as the insurance company may be willing to cover a
portion of one drug but prefer and completely cover a cheaper
alternative.
United Kingdom
Most people in the countries of the United Kingdom get prescriptions partly or totally paid for by the National Health Service.
Developing world
In many developing countries the cost of proprietary drugs is beyond the reach of the majority of the population. There have been attempts both by international agreements and by pharmaceutical companies to provide drugs at low cost, either supplied by manufacturers who own the drugs, or manufactured locally as generic versions of drugs which are elsewhere protected by patent. Countries without manufacturing capability may import such generics.
The legal framework regarding generic versions of patented drugs is formalised in the Doha Declaration on Trade-Related Aspects of Intellectual Property Rights and later agreements.
People and governments in developing countries have far fewer
financial resources to bear high monopoly prices and drug prices even
for patent-protected medicines in these countries are often considerably
lower. Profits are often insubstantial and do not proportionally cover development costs. In many cases, a patent holder will license generic manufacturers to sell to low-income countries at low cost.
India has less restrictive patent regimes which make the manufacture of
generic medications possible sooner, for sale domestically or in other
countries where the patent protections do not apply.
Typically the cost of making small-molecule drugs is only a very small
portion of a developed-country market monopoly price, which makes
generic manufacturing very cheap. In contrast, some drugs are inherently expensive to produce, such as the biopharmaceutical drug Cerezyme, typically costing $200,000 per year in the United States.
