Nationally, voters are “very concerned” about what is going on in the world of pharmacy and how it impacts you. Not only how much prescription drugs are costing you, but also how to lower those drug prices.

nationally voters rank health care as the top issue

health care related concerns chart

The Cost of Prescription Drugs [1]

cost of pharmacy drugs chart

The chart below gives you a visual example of the dramatic increase in the retail price of prescription drugs. [2]  Current trending has leveled off at just under 6 percent and is predicted to stay in that range through 2025. [3]

annual retail price of drugs chart

Here is a summary of pharmaceutical cost drivers based on the current situation.

Pharmacy (Prescription Costs) Cost Drivers

MONOPOLY RIGHTS   [4] [5][6]

Pharmaceutical drugs are the only major health care service in which “the producer is able to set prices relatively unrestrained.”[7]  This price tag is largely driven by brand-name drug prices that have increased in recent years at rates far beyond the consumer price index.[8] Additionally, manufacturers are able to set such high prices because of market exclusivity, which is protected by monopoly rights awarded based on the Food and Drug Administration approval and patents.[9]

MEDICARE DRUG BENEFIT [10] [11] [12] [13]

medicare drug spending chart

In 2003, Congress created the Medicare drug benefit. This legislation “prevented the country’s largest single-payer health care system from negotiating drug prices.” [14]  The end result was that Medicare could not use its significant volume (and therefore market negotiating leverage) to manage prescription drug prices. An interesting part of this contradiction to common sense is that the government does employ pricing strategies for other government health programs such as the Veterans Health Association (VA), Department of Defense (DOD-Tricare/Tricare For Life), 340B program,[15] and Medicaid.


Legacy drugs (retail prescription drugs) should move from patent and exclusivity to generic in a seamless unhindered fashion, but that is not the reality. This primary strategy for reducing prescription drug cost is constantly bucking the pharmaceutical industry headwinds of “numerous business and legal strategies.”[18] This is how it is supposed to work: an innovator firm develops new drugs, which are then patent-protected, which gives the firm a protection on their investment by giving them the sole right to sell the drug while the patents are in effect.

When patents or other periods of exclusive marketing for brand-name drugs are near expiration, manufacturers can apply to the Food and Drug Administration to sell generic versions. Roughly 44 percent of all prescriptions in the United States are filled with generic drugs. Yet in July of 2016, the FDA generic drug application backlog comprised 4,036 generic medications.


Another key contributor to drug spending is when a physician prescribes a specific choice when “comparable alternatives” are available at different costs. Doctors who received money or other perks from drug and device makers (even just a meal) prescribed a higher percentage of brand name drugs overall than doctors who didn’t. Some states have even tried to legislate different aspects of Marketing and Direct-To-Consumer Advertising (DTCA), including advertising, marketing, and doctor detailing and counter-detailing. [19]


“Advertising is a valuable economic factor because it is the cheapest way of selling goods, particularly if the goods are worthless.”  Sinclair Lewis, American author (1985-1951).[20] In 2012, the pharmaceutical industry spent more than $27 billion on drug promotion — more than $24 billion on marketing to physicians and over $3 billion on advertising to consumers (mainly through television commercials). This approach is designed to promote drug companies’ products by influencing doctors’ prescribing practices.[21]

How it’s Done

Direct-to-Consumer Advertising: In 1997, FDA-issued guidance that enabled pharmaceutical companies to more easily advertise to the public. These ads have encouraged one-third of respondents to speak to their doctors about the promoted drug and one-fifth to request the prescription.[23] The United States and New Zealand are the only member countries of the Organization for Economic Cooperation and Development in which drug companies can advertise prescription drugs directly to consumers.

Indirect Marketing: Continuing Medical Education (CME): In 2011, the pharmaceutical and medical device industries provided 32 percent of all funding for continuing medical education courses in the United States $752 million out of $2.35 billion.[24] To prevent these courses from functioning as veiled marketing, the Accreditation Council for Continuing Medical Education regulates them. However, a 2007 Senate Finance Committee report found that ‘drug companies have used educational grants as a way to increase the market for their products in recent years.’[25]

Next week … Part B


[1] IBID Washington Post 3/26/16


[3] Kaiser Family Foundation analysis of National Health Expenditure (NHE) Historical (1960-2016) and Projected (2017-2026) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group (Accessed on February 14, 2018)

[4] Bach, Peter B.; Pearson, Steven D. (2015-12-15). “Payer and Policy Maker Steps to Support Value-Based Pricing for Drugs”. JAMA. 314 (23): 2503–2504.


Understanding GenericDrugs/UCM564441.pdf

[6] Matthew Herper How To Charge $1.6 Million For a New Drug And Get Away With It. Forbes, Mar 19, 2012





[11] MedPac June 2017 Report to Congress, Chapter 2 “Medicare Part B Drug Payment Issues-main contributor. Reported by Kaiser Family Foundation.

[12] Kaiser Health News as reported in USA Today, May 28, 2018

[13] Joseph Antos and Thomas F. Wildsmith, “Inflated Claims about Drug Prices”, American Enterprise Institute, 8 July 2005


[15] requires pharmaceutical manufacturers to enter into an agreement, called a pharmaceutical pricing agreement (PPA), with the HHS Secretary. Under the PPA, the manufacturer agrees to provide front-end discounts on covered outpatient drugs purchased by specified providers, called “covered entities,” that serve the nation’s most vulnerable patient populations.


[17] “FDA Fees On Industry Haven’t Fixed Delays In Generic Drug Approvals”.

[18] IBID


[20] Quote source: The Arizona Republic

[21] Ashley Wazana, “Physicians and the Pharmaceutical Industry: Is a Gift Ever Just a Gift?” Journal of the American Medical Association 283 (2000): 373–80.


[23] Robert A. Bell, Richard L. Kravitz, and Michael S. Wilkes, “Direct-to-Consumer Prescription Drug Advertising and the Public,” Journal of General Internal Medicine 14 (1999): 651–57.

[24] Accreditation Council for Continuing Medical Education, ACCME 2010 Annual Report Data (2011)

[25] Noelle C. Sitthikul, “Senate Finance Committee Releases Report on Drug Industry CME Grants,” FDA Law Blog, May 8, 2007.

By | 2018-09-27T14:24:32+00:00 September 27th, 2018|Categories: Healthcare|Tags: , |0 Comments

Leave A Comment