Last week the top 10 democrats gathered to debate who should represent the party during the next presidential election. If you tuned in for even a few minutes of the show, you likely heard the candidates debating the merits of their various health care proposals. That’s because health care has been and remains one of the most important issues for American voters.
In two 2019 polls, voters ranked healthcare as the most critical issue facing America today. This ranking is largely due to the cost of healthcare is exorbitant in this country, even compared to other industrialized nations. In 2018, our country spent over $3.65 trillion on healthcare. This figure is more substantial than the total GDPs of whole countries such as the U.K., Spain, Brazil, Mexico, and Canada.
The average American in 2018 spent $11,200 per person on healthcare. And despite these figures, our country’s quality of care is not the world’s leader, per the Institute for Health Metrics and Evaluation at the University of Washington. According to their study, the U.S. ranks 27th in the world for its levels of healthcare.
So, if we’re not getting the best quality of care, why are we paying so much? Well, one of the most significant drivers behind our country’s rising healthcare costs is how much we, as Americans, pay for prescription drugs. In this article, we’ll cover why Rx costs are so high in this country, and how these exorbitant prices affect both your employees and your business as a whole.
How Much Are We Paying for Prescription Drugs?
Americans pay around $1,200 on prescription drugs a year, per the Organization for Economic Cooperation and Development. This number is greater than what people pay in any other developed country in the world. And it’s not just new drugs or ones for rare conditions that cost so much.
Pharmaceutical companies have raised prices most sharply for commonly used medications that treat such conditions as diabetes, high cholesterol, and asthma. Plus, 14 percent of these drugs are paid for out-of-pocket, meaning insurance doesn’t help individuals pay for these medications.
Why Are Our Prescription Drug Costs So High?
1. Lack of Regulation
There are numerous reasons prescription drug costs are so considerable. One of the most significant reasons is the lack of regulation in this country. America is the only industrialized nation that doesn’t regulate the price of drugs to ensure medical treatment remains affordable for all citizens, regardless of income.
Countries like Australia, Canada, and dozens of others do regulate the price of prescription drugs, unlike other consumer goods. These countries do this because prescription drugs are a good that some citizens literally can’t live without. Though this increased government regulation does come with some trade-offs.
Those countries that more regulate prescription drugs will often refuse to cover drugs they don’t think are worth the price. These refusals can lead to certain drugs sold in the U.S. being unavailable in other countries. Still, because there are more drugs on the market doesn’t mean all patients can access them. If medications are so expensive you can’t afford them; it’s functionally the same thing as not having them on the market.
2. Misaligned Incentives
Another reason prescription costs are so exorbitant in this country is the system of misaligned incentives between pharmaceutical manufacturers and a health plan’s pharmacy benefits manager (PBM). In America, PBMs are responsible for setting which drugs patients can access and negotiate prices with drug companies.
These PBMs are then paid based on the size of the discount they negotiate with drug manufacturers. Theoretically, this arrangement should encourage PBMs to drive the cost of prescriptions down. If your pay is tied to how much of a discount you get, it makes sense a PBM would negotiate hard for as large of a discount as possible.
But there’s a significant flaw in this equation. The PBM to drug manufacturer relationship creates a scenario where manufacturers simply raise their prices so that they can give more significant discounts to PBMs. This situation results in manufacturers and PBMs getting paid more, but your plan/ your employees are also going to pay more.
Many health insurance/pharmacy plans make patients pay full drug costs until they meet their deductible, and other plans require patients to pay a coinsurance cost for each prescription they fill. The problem with these plan options is they are both based on the drug’s list price. So, every time a drug manufacturer raises their rates, even with a discount, your employees are paying more.
And the data backs this claim up. According to a recent Bloomberg article, around 14 percent of American’s total prescription medicine costs are out-of-pocket. Which means your employees are likely paying a significant amount of out-of-pocket money on their prescription drugs.
3. Lack of Negotiation
One of the substantial reasons behind our country’s high prescription drug costs is a lack of federal negotiation of prescription medicines prices. The United States government allows drug manufacturers to set their own prices. This self-regulation doesn’t happen anywhere else in the world.
A reason our government doesn’t negotiate prices with drug manufacturers is due to a lack of a national health program like other countries such as Canada or the U.K. These countries have government bodies that either negotiate drug prices to affordable levels or decide not to cover drugs if the government feels the prices are excessive.
But in America, even Medicare has no say in the determination of prescription medication costs. Because there is no governmental healthcare agency, there is no negotiation process, which allows drug companies to set their prices unchallenged. This lack of negotiation also plays into the next reason prescription drugs are so costly in this country.
4. Decreased Competition
The final principal basis for high prescription drug costs in the U.S. is a lack of competition. Drug manufacturers have long claimed extreme research and development costs are the biggest drivers behind pharmaceutical prices. But in America, it’s been a lack of competition, not research, and development that’s behind much of the expensive prescription drug pricing.
In the United States, the lack of a government-run regulating body has reduced the chances for competition for certain manufacturers and their products. Other countries increase competition by making it easier for drug makers to manufacture generic drugs.
But in America, the patent system allows drug manufacturers to stay as the sole manufacturer of a patented drug for 20 years or more. Furthermore, the FDA grants these companies exclusivity for certain products, such as medications used in the treatment of rare diseases. These laws work to protect a manufacturer’s hold in the marketplace and reduce the number of available generics.
The less generic drugs in the market, the less competition between pharmaceutical companies. And when businesses in any industry are no longer forced to compete, the consumer loses. This lack of competition is apparent in the pharmaceutical field, as is its adverse impact on consumers.
According to a 2016 study by the Journal of the American Medical Association (JAMA), generic medications have an enormous impact on the overall prices of prescription drugs in America. Per the article, prices go down to 55 percent of their original brand-name cost when there are two generics on the market. And they decrease to 33 percent of the original cost when there are five generics.
The United States has long prided itself on capitalism. Our nation was founded upon this system. But, until the government allows for increased competition in the pharmaceutical industry, through increased competition, individual consumers will lose.
Why do High Prescription Drug Costs Matter?
As previously stated, Americans pay more for their prescription medications than any other economically developed country. But that’s just the tip of the iceberg. On average, citizens of other wealthy countries spend 56 percent of what Americans spend on the same drug. According to a 2016 article by Vox, one in four Americans reports having trouble paying for medication. And, for Americans everywhere, these high drug costs quickly add up.
The Department of Health and Human Services estimates over the next decade, drug prices will rise 6.3 percent each year, in the U.S. Other healthcare costs are also expected to rise, but only by an estimated 5.5 percent each year. These statistics show how growth in the price of prescriptions drugs is expected to outpace other healthcare expenses in this country.
The high cost of Rx medications in this country can have a wide range of negative impact on your staff. First, and most obvious, your employees will pay more out-of-pocket for their medications, which can negatively affect their financial wellness. And financial stress alone costs U.S. businesses close to $300 billion a year in unscheduled absenteeism, reduced employee productivity, and higher employee turnover.
Second, the exorbitant costs of prescription drugs in this country have pushed some patients to either underuse their prescriptions or skip some medications altogether. A recent study in the Journal of Clinical Oncology found 13 percent of cancer patients didn’t buy approved chemotherapy drugs if they had a co-payment of $10 a month. Similarly, 67 percent didn’t buy their medications when they had to pay $2,000 or more. Another study found 25 percent of diabetic patients underuse their insulin because of cost.
Now you know how and why your employees are paying more for their prescription medications than any other developed nation. You also know how these high prescription drug costs can have a severe, adverse impact on your staff. The question remains, how do you help keep these prices down for your employees?
Well, The Olson Group can work with you to establish a health and pharmacy benefits plan that helps you and your employees attain the best possible Rx prices. Contact one of our benefits consultants today, and get started on battling back against the out-of-control prescription drug costs in our country.
It doesn’t take a president to change prescription drug costs. Get started now by using your employee benefits plan to address the four causes of high prescription drug prices in this country.