What drives high drug prices?

High drug prices in the United States are driven by the existence of government-protected "monopoly" rights for drug manufacturers, combined with coverage requirements imposed on government-funded drug benefits, according to researchers at Harvard Medical School.

The researchers combed through peer-reviewed medical and health policy literature from January 2005 to July 2016 for articles addressing the sources of drug prices in the United States, the justifications and consequences of high prices and possible solutions. The results were published in the Journal of the American Medical Association.

Here are four takeaways from the research.

  • Per capita prescription drug spending in the U.S. exceeds all other countries. Researchers said the high spending rates are largely driven by brand-name drug prices that have been increasing in recent years at rates exceeding the consumer price index. In 2013, per capita spending on prescription drugs was $858 in the United States compared with an average of $400 for 19 other industrialized nations, according to researchers.
  • In the United States, prescription medications now make up an estimated 17 percent of overall personal healthcare services.
  • The most important factor allowing manufacturers to set high drug prices is market exclusivity, which is protected by monopoly rights awarded upon Food and Drug Administration approval and by patents, researchers said. "The availability of generic drugs after this exclusivity period is the main means of reducing prices in the United States, but access to them may be delayed by numerous business and legal strategies," they wrote. "The primary counterweight against excessive pricing during market exclusivity is the negotiating power of the payer, which is currently constrained by several factors, including the requirement that most government drug payment plans cover nearly all products."
  • Researchers also attributed high prescription drug spending to physician prescribing choices when comparable alternatives were available at different costs.

Researchers listed a myriad of short-term strategies to address high prices, such as "enhancing competition by ensuring timely generic drug availability" and "providing greater opportunities for meaningful price negotiation by governmental payers."



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