High Drug Prices’ Toll on America

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American healthcare has been called a paradox — and for good reason.

On one hand, the U.S. spends big on health. In 2016, the United States spent almost 18 percent of its GDP on health care, a larger percentage than that of comparable high-income nations like Australia, which spent 9.6 percent, and Switzerland, which — ranked second after the U.S. in health care spending among OECD countries — spent only 12.4 percent. Total health care expenditures in the U.S. reached $3.5 trillion in 2017, with per-person spending averaging twice as much in the U.S. than in other wealthy countries.

On the other hand, U.S. health care yields less bang for each buck. On key measures of health care resources per capita, like hospital beds and doctors, the U.S. provides fewer resources than comparable countries. In 2015, the U.S. had only 7.9 nurses and 2.6 physicians per 1,000 people — 20 percent and 19 percent fewer, respectively, than the OECD median. The U.S. also has 47 percent fewer new medical school graduates and 31 percent fewer acute care hospital beds than the OECD median. Yet despite the U.S.’s spending on health care, its citizens are among the least healthy of high-income countries: Americans have a higher disease burden, a greater rate of preventable deaths, shorter lives, and more vulnerable babies (per 1,000 live births, almost twice as many newborns die in the U.S. as in peer nations) than citizens of comparable countries.

American drug pricing demonstrates this paradox. Compared to health care costs in high-income European countries, drug prices are the single biggest category of U.S. health care overspending. In 2016, Americans spent an estimated $460 billion on retail and non-retail drugs; on average, citizens of other wealthy countries spent 56 percent of what Americans spent on the same drug. Exacerbating this issue is the fact that drug spending and prices are rising rapidly. From 2000 to 2016, pharmaceutical spending increased at an annual, inflation-adjusted rate of 3.8 percent — more than three times as fast as the OECD median of 1.1 percent, and faster, too, than the rate of increase of health care costs overall. Over the next decade, drug prices are expected to rise 6.3 percent each year, while other health care costs will rise 5.5 percent.

Why are costs rising? For decades, researchers have pointed to myriad causes. For health care more broadly, an enormous and diverse population, a comparatively low rate of social service spending among OECD countries, and poor preventive care have all been singled out as contributing factors. For rising drug prices specifically, however, an oft-cited cause is the U.S.’s complex drug price-setting processes — what law professor Robin Feldman has criticized as the nation’s “shadowy and byzantine system for negotiating drug prices and rebate deals.” This system, say critics, stifles generic drug development, jacks up out-of-pocket costs, and allows drug prices to be artificially inflated to make discounts look artificially large (think of a clothing store that raises prices before they tack on sales). Drug companies, which have faced the bulk of this criticism, counter that they funnel their profit margins into research and development, and that insurance companies are more to blame for high prices.

Of course, for Americans, these debates matter less than the bottom line: drugs cost too much for many people. A February Kaiser Family Foundation (KFF) poll found that 80 percent of Americans consider prescription drug costs “unreasonable,” and a majority favor many of the recent proposals aimed at curbing costs. A recent Harvard/Politico poll found that 92 percent of adults, both Republicans and Democrats, consider lowering prescription drug prices an “extremely important” health care priority for the 116th Congress — a higher percentage than for any other issue, including lowering overall health care costs and increasing funding for disease research.

The poor and the sick have paid the biggest price for America’s health care costs. While 24 percent of adults who take prescription drugs say it’s “difficult” to pay for medicine, this number rises for people who make less than $40,000 a year (35 percent say it’s difficult), take four or more drugs (35 percent), and are in fair or poor health (almost half). In 2017, almost 4 in 10 uninsured adults asked their doctor for cheaper medicines; 1 in 3 didn’t take their medication as prescribed. Nobody knows how many people endure preventable pain, hospitalization, or even death because of inability to afford medicines; as Dr. Nicky J. Mehtani of the Johns Hopkins Hospital wrote recently, physicians aren’t allowed “to list ‘inability to pay’ as a cause of death on death certificates.”

In light of these stark data, it’s unsurprising that congressional leaders have taken notice. In the run up to the midterm elections, both Democrats and Republicans on the campaign trail cited drug prices as a key issue priority for the 116th Congress. The House and Senate have already held several hearings. Leaders from both parties have introduced dozens of bills, and while most will die this session, a few have gained bipartisan support — a significant feat in a divided Congress. House Speaker Nancy Pelosi said in November that the parties could find “common ground” on drug pricing; Senate Leader Mitch McConnell indicated that the issue would be on the agenda. Now, the nation is watching.

To learn more about these debates, listen to last month’s webinar on US drug pricing. If you’d like to use our slides for your research or communications, check out our drug pricing primer, download our legislative forecast for pharmaceuticals, or search the Presentation Center’s health care vertical. If you can’t find what you’re looking for, contact us to learn more about PC Concierge, our customized content service.