All of us have been sick at one point in our lives. Whether it’s a common cold or a severe and chronic disease, we all know what it’s like to feel less than 100 percent. Now imagine you’re sick, you’ve been prescribed medication, you get to the pharmacy and you find out you can’t afford your medication. What do you do?
Well, for many Americans, the above scenario is an everyday reality, not hypothetical. That’s because we as Americans pay around $1,200 a year on prescription drugs, 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. That’s why one 2015 study by the Kaiser Family Foundation reported one in four Americans has trouble paying for their prescription drugs.
In this article, we’re going to detail the number one reason why prescription drugs in America cost so much. And we’ll tell you why this reason isn’t what you, or many others in this country, may believe.
Why are Our Prescription Drugs so Pricey?
There are several reasons prescription medications in this country are so expensive. You can read about some of these reasons and why they matter here. But, one of the most substantial reasons behind the excessive drug prices in this country has been hidden in plain sight by the industry itself.
For years pharmaceutical companies have claimed the primary reason behind high drug prices in this country are the amount these businesses must spend on research and development. These companies argue they must maintain high drug prices to protect the strength of the industry. Essentially, these pharmaceutical businesses claim they must charge so much because, without it, they wouldn’t be able to develop and make new drugs.
Are Research and Development Costs Really Responsible?
Recently there’s been a rash of research into the industry that contradicts these companies’ claims. According to an article from the Journal of the American Medical Association some drug companies spend as little as 10 percent of their revenue on research and development. But even pharmaceutical companies that spend more on R&D overstate their need to recuperate losses from this development process.
A recent article in The Atlantic compared the top 20 best-selling drugs in the U.S. to those drugs’ prices in Europe and Canada. This research found the cumulative revenue from the price difference on only these 20 drugs more than covers all the R&D costs conducted by the 15 drug companies that make those 20 medications.
All the revenue from these companies added up to about $80 billion a year. After accounting for these costs, drug manufacturers still made $40 billion in profit form the top 20 selling drugs alone. According to this research, a majority of drug makers extra money is being spent on sales and advertising. Of the ten largest pharmaceutical companies, only one spends more on research and development than on marketing its products.
Gerard Anderson, professor of health policy and management at John Hopkins University, echoed these findings in a recent interview with NPR. According to Anderson, “Research and development is only about 17 percent of total spending in most large drug companies.” Anderson says once a drug is approved by the FDA, there are minimal additional R&D costs. So, drug companies cannot justify price increases by claiming research and development costs for existing products.
There is a multitude of reasons prescription drugs cost so much in this country. But the reason you hear most often from the drug manufacturers themselves is the high cost of research and development that are deemed necessary for the industry to continue profiting.
Still, as we’ve learned today, the purported costs research and development don’t add up. As an employer, you can’t tell drug manufacturers to lower their prices because you don’t believe they spend as much as they say you do.
But there are still several methods any employer can use to reduce the cost of prescription drugs for you and your employer. You can read about some of these methods here. Or, contact one of our benefits consultants today, at 402.289.1046 or [email protected], and get started on reducing your pharmacy spend.