The Cost of Prescription Drugs

Table of Content


            The passage of the nation’s first comprehensive health care plan has yet to help consumers with the high cost of prescription drugs. Keeping that in mind, there are two steps that would lower the price of prescription drugs across the country and help both the insured and uninsured.  The first step to decrease the costs consists of cutting red tape and getting more generic drugs onto the market.

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The generic pharmaceutical business has been supplying lower cost drugs to the public for 25 years now.  This saves the public from 30 to 80 percent on drug costs.  With the passage of the Drug-Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, the Food and Drug Administration has been able to approve affordable drugs (About Generics, 2010).

The second step to lower costs includes the importation of foreign drugs into the nation’s market.  The consistent trend has been Americans crossing the border into Canada to buy prescription drugs at a lower price.  Nevertheless, it is illegal today to purchase drugs in Canada and bring them to the United States with more than a 90-day supply.  The FDA states that the barrier is there to protect Americans from drugs that may be unsafe (Jacobson, 2010).

This paper examines the problems of high drug costs and reviews the opinions of providers, as well as patients.  If the current suggestions are not implemented, the increase of prescription drug costs will continue on into the future.  Although the health care bill was passed in 2010, it does not take steps to reduce costs of the prescription drugs; however, it does give more individuals an opportunity to utilize costly pharmaceuticals.

            The suggestion found in this paper would provide for lower costs and more competition.

The Cost of Prescription Drugs

            Even with passage of the nation’s first comprehensive health care plan, the cost of prescription drugs still remains a problem for many Americans.  Keeping that in mind, there are two steps that would rapidly lower the price of prescriptions throughout the nation helping both the insured and uninsured.  The first step to decrease the cost of prescription drugs consists of cutting red tape and getting more generic drugs onto the market.  The second step to lower costs includes the importation of foreign drugs into the nation’s market.

            The generic pharmaceutical business has been supplying lower cost drugs to the public for 25 years now.  This saves the public from 30 to 80 percent on drug costs.  With the passage of the Drug-Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, the Food and Drug Administration has been able to approve affordable drugs (About Generics, 2010). In signing the bill, President Ronald Reagan said, it would provide “regulatory relief, increased competition, economy on government, and best of all, the American people will save money and yet receive the best medicine that pharmaceutical science can provide” (About Generics, 2010).

            The use of generic drugs saves American consumers billions of dollars each year because they are less costly. Large innovator drug companies, however, that are responsible for brand-name products will often try to delay the generic version from getting onto the national market (Patel, 2009).  The Hatch-Waxman Act determines the way the generic drugs are regulated.  The act, responsible for the way generic drugs are approved by the Federal Food and Drug Administration, is reflective of a balance developed through Congress that brings two competing interests into balance.  For instance, under the Hatch Waxman Act, the drug companies are protected by inducing the research and development of new name-brand pharmaceuticals.  Secondly, the bill allows the drug company’s competitors to bring the lower cost generic drugs onto the American market (Patel, 2009).

            Any drug innovator company that wants to bring a new drug into interstate commerce must get FDA approval by submitting a New Drug Application.  In addition, the new drug company must submit information to the FDA regarding safety and efficacy, along with the patent number.  The FDA must them list the drug in its so-called “Orange Book” (Patel, 2009).  After the drug is listed, it becomes a “listed drug” otherwise known as a brand-name product and it awaits FDA approval.

            The development of a new drug takes tremendous time, perhaps as long as 1- to 15 years.  The cost is also high, from $500 million up to $2 billion to bring a new pharmaceutical on to the market (Patel, 2009). During the early part of the new drugs’ existence, no generic drug is permitted on the market.  Usually, a new drug has an exclusive period, usually five years, in which the generic cannot be marketed.  The Hatch –Waxman Act, in order to get the lower-priced generic drugs on the market, has increased the process of approval by accelerating the Abbreviated New Drug Application Process (Patel, 2009).

            A generic drug is less costly than the name-brand because it does not have to conduct the types of testing to prove that it is safe.  The generic, in other words, relies on the testing done by the innovator company and detailed within the new-drug application.  The generic drug only must prove it has the same ingredients as the name-brand (Patel, 2009).

            Although the accelerated approval process to get a generic drug on the market is in place, the FDA will not grant approval until the period of exclusivity for the name-brand ends.  Usually the period of exclusivity is five years.  In addition, the patents protect the name-brand drug and works with the market exclusivity until expiration.  Therefore, any generic drug must contain certification of each patent submitted and listed within the so-called “Orange Book” (Patel, 2009).

            All generic drugs also must certify that all patent information has been filed, that the patent of the name-brand is expired, and that the patent for the generic will also expire on a given date.  The applicant for the new-drug does not want the patent invalidated or infringed upon by the introduction of the generic on to the market.  These stated qualifications determining the approval timing by the FDA.  A generic product of a name-brand product, therefore, must wait for the market exclusivity to end, along with the expiration of all patents listed for the new drug in the Orange Book (Patel, 2009). Some experts in the area of pharmaceuticals claim the savings is great with the use of generic brands, but other scholars argue that the use of the generic drugs expose the name brand drug to risk of bioavailability (Chilton, 1981).

            Research studies, nevertheless, indicate that there is savings for consumers with the use of the generic drugs. Doctors, in the field or research, however, state that it is best for the physician to determine which brands work the best for patients and utilize them.  The doctor who is cost-conscious may prescribe brand names with a narrow therapeutic file, rather than a broader file within the generic field (Chilton, 1981).

            With savings in the billions for consumers, the manufacturer of the brand-name product may try to keep the generic version off the market for as long as possible.  Although the process for approval of generic drugs is difficult, it is unfair to consumers for the brand name company to use the system to maintain its monopoly.  Many times the brand-name company introduces questionable or frivolous patients to try to slow down the approval process for generic drugs.  However, only by removing market barriers can greater competition occur and more rapid access (About Generics, 2010).

            It is important to note that all generic drugs must meet all the same standards as does the name brand.  This includes the same active ingredients, safety and effectiveness, labeling, quality manufacture and strength and dosage.  The generic drug could be different in appearance, size, shape, color, etc.  The difference is due to the brand-name drug-maker prohibiting any copy of its original (About Generics, 2010).

            In a 2007 report, United States manufacturers of brand-name pharmaceuticals had sales equally $228 billion.  Generics, on the other hand, made $58.5 billion. Of the 12,751 drugs listed on the Orange Book by the FDA, 10,072 have a generic.  The average generic price in 2007 for generic drugs was $34.34.  The average price of brand-name drugs was $119.51.  The top generic drugs in the United States includes, Levothroxine, Amoxicillin, Lisinopril, Simvastatin, and htdrochlorothiazid (About Generics).

            Sixty-nine percent of all prescriptions this year will be filled with a generic.  To decrease the cost of drugs, the elimination of the red tape that generic drug manufacturers have to go through must be stream-lined.  Such steps would result in more competition with more generic products offered to the public.

            FDA online pharmacy, has partnered with Atlantis Health Plan, of New York City, to offer a new plan which gives consumers their generic drugs free of charge.  As a result of the program, all Atlantic members can join an insurance plan that cuts the expense of prescription drugs dramatically.  The program serves as a pilot program for other companies throughout the nation (Healthwarehouse, 2010).

Generic prescription drugs amount to about tow-thirds of all prescriptions filled in the United States.  Studies that have been conducted indicate that a patient that switches from a brand-name drug to a generic will get considerable savings.  This amounts to an 11 percent saving in overall drug costs.  The government and insurance companies examine methods to increase the use of generic drugs by offering them free of charge to patients and doctors, as well as providing coupons (Shrank, Cox, Fischer, Mehta, Choudhry, 2009).

            The problem is that generic usage is inconsistent.  Scholars worry that is because of concerns regarding safety.  However, surveys indicate that 25 percent of those responding agree “Branded drugs are more effective than generic drugs” for back pain and cholesterol issues (Shrank, 2009).

            However, the same survey revealed that nearly 30 percent of respondents believed that new drugs work better than the old drugs.  Nevertheless, few people indicated any concern about side-effects or safety of generic medications (Shrank, 2009).

            Another method that could immediately force pharmaceutical costs downward would be more importation of drugs from outside of the United States.  This provision was not included within the 2010 health care legislation.

            The consistent trend has been Americans crossing the border into Canada to buy prescription drugs at a lower cost.  Nevertheless, it is illegal today to purchase drugs in Canada and bring them to the United States.  The FDA states that the barrier is there to protect Americans from drugs that may be unsafe (Jacobson, 2010).

            The prescription drug company was a major supporter of the 2010 health care bill and any talk of legalizing the purchase of drugs from Canada has faded.  The drug companies will pay enormous fees annually, beginning in 2010, and all brand-name manufacturers will give a discount of 50 percent on those prescriptions filled as part of Medicare Part D in 2011.  Although the discounts may help consumers on Medicare, they do not assist Americans that still are without health insurance today.  (Jacobson, 2010).

            Statistics indicate that the cost of Canadians drugs is 3 percent higher than in the United States.  However, the price per dose amounts to 45 percent less than the price per dose in the United States.  Manufacturers claim that the higher price is due to the need to recover the costs of research and development.  They claim they must recover a portion of the cost on each pill that is sold (Latham, 2003).  The importation of drugs from foreign countries is illegal in large quantities.  Consumers, however, are enabled to purchase a 90-day supply for their own use (Kesselheim, Choudhry, 2008).

            One example of a husband and wife was the purchase of a three-month supply of drugs from a Vancouver Pharmacy.  According to the report, they paid $624. 77 for a three month supply.  The same purchase costs $1,208.04 at Walgreen’s or Target in the United States.  A 100-day supply of Celebrex, 200mg, costs $151.00 in Canada, as compared to $262.00 in the United States.  Similarly, Lipitor, 20 mg, costs $134.00 in Canada and $449.00 in the United States (Kaiser, 2009).

            The purchase of pharmaceutical drugs from stores in Canada is not new, as for years it has been common practice.  In 2005, 2 million senior citizens purchased their medicine in Canada.  Many report, even with Medicare Part D, the costs are still less in Canada (Kaiser, 2009).

            Customers of foreign countries pay less for drugs due to the following factors: Citizens of the United States may be paying too much; a poorer country is considered price sensitive and is not paying as high a price of research and development; and another country may be holding back for the United States to bear the burden of research and development costs. (Latham, 2003).

            Policy-makers claim they must consider the following in decisions to prohibit foreign drugs from shelves in the United States.  First of all is whether the product is safe.  Secondly, they must ask how the imported price compared to the cost of the American product.  Thirdly, politicians must gauge how importing the drug will affect the drug market in the drug’s home nation (Kesselheim and Chondhry, 2008).  Politicians believe that the more wealthy nations have a regulatory system that can be trusted in assuring the safety of the product.  They also worry that importing the drug may have a negative impact on the nation imported from and can decrease long-term savings for consumers in the United States (Kesselheim, 2008).

            Although American companies and opinion leaders question the safety of drugs from other countries, each has their own system of regulation.  For instance, Health Canada regulates the use of pharmaceuticals of Canada with a rigorous process of licensing that consists of a pre-market evaluation and out-going post-market evaluation of the safety of the drug, its effectiveness, and the quality of the drug.  Health Canada will conduct a risk/benefit evaluation, and monitor all adverse reactions.  This information is forwarded to physicians as well as consumers (Health Canada, 2009).

            Some scholars state that the cost controls used in Canada endanger people’s health.  The say that Canadians have less money than Americans and therefore cannot afford higher priced drugs.  One factor, however, that does result in a decrease in Canadian drugs is the cap put on liability in court cases.  It is estimated that in the United States, trial lawyers receive a nickel on each dollar related to the cost of pharmaceuticals (Freese, 2003).

            In addition, some critics state that it takes longer for a drug to get on the market in Canada and that people are expected to use outdated medications.  However, a survey by Frank Lichtenberg of Columbia University indicated that new pharmaceuticals developed between 1986 and 2000 resulted in the increase of the global lifespan by nine months (Freese, 2003).

            Pharmaceutical manufacturers also claim the higher cost of prescriptions is necessary due to the high risk nature of the business.  For instance, for every 5,000 drugs discovered, only one of them will make it to the marketplace.  In addition, only three out of every ten drugs manufactured will produce revenues that exceed or meet the research and development costs.  The manufacturers state that they must rely on a few successful products to support further research and development (Latham, 2003).

            Individuals that invest in pharmaceuticals also demand a high return on the drug products.  In addition, reduced profits will reduce the amount of money for pharmaceutical development in the future.  Dr. Alan Sager, a critic of the pharmaceutical response, said such talk is only a myth with them posturing for support and funding.  He said that the attitude of drug companies is “Give me all your money or you will die” (Latham, 2003).

            Research of drugs by large companies is paid for out of each country’s sales.  Many scholars believe that prices of domestic drugs can be decreased without damaging research and development.  They believe that more exposure to global competition would result in additional research.  According to former FDA Commissioner, Mark McClellan, however, the drug industry is responding to pressures around the globe to raise prices to the United States level.  McClellan argues that the prices in England and Canada are too low, thus making it impossible to afford drug research.  Reports, however, out of England indicate there is plenty money for research and development.  Nevertheless, McClellan argues, “price controls discourage research and development needed to develop new products” (Light, Lexchin, 2004).

            Other advocates for decreased drug prices argue that the free-rider issue on sale prices can be handled by decreasing American drug costs to the European level.  Americans pay more in the way of research and development due to the increased sales in the United States.  The United States has 51 percent of sales globally.  It required, however 58 percent of world-wide spending invested in America to discover 43 percent of new pharmaceuticals (Light, 2004).

            Apparently the research funds necessary to finance research and development is not as high as Drug Company officials want people to think.

            Americans spend $200 billion each year on prescriptions.  This figure reflects that people are taking a larger number of drugs for different illnesses.  The drugs tend to be the newer and more expensive, rather than the older and modestly priced drugs.  Before the patent expired on Schering-Plough’s drug Claritin, the price was increased 13 times in five years for a 50 percent price increase.  Once again, the drug company explained that the prices increases were necessary for research and development.  However Dr. Marcia Angell refutes the need for large amounts of money for research and development and states the expenses come in the area of advertising and marketing (Brewer, 2009).

            According to Angell, of the $200 billion reaped by drug companies, $20-$40 billion is legitimately used for research and development.  She claims that 75 percent of the money is used for marketing.  She also claims that $15 to $18 billion is spent by drug companies to develop what she terms as “me too drugs” (Brewer, 2009).

            The “me too” drug is one that is developed by the drug company to compete with a popular new drug.  This is done to try to get a share of the market.  For instance, Pravachol, Mevacor, Zocor, Lipitor, Lesol and Crestor are drugs that do the same thing.  One, however, is the first drug and the others are variants that do not need the huge amount of money for research and development (Brewer, 2009).

            According to research, doctors who use an electronic form of prescribing medications tend to be more likely to recommend lower-costs medicines.  A report in the December 2008 issue of the Archives of Internal Medicine, “Prescription drug costs account for a significant proportion of medical spending and have been increasingly rapidly” (Electronic Prescribing 2008). A method of encouraging the use of cheaper medications is a co-payment system of tiers.  For instance, tier one may consist of cheaper and generic drugs.  These items would have the lowest co-ay.  Tier two would consist of moderately priced drugs and have higher co-pay.  Tier three would be the higher priced medications with the highest co-payment (Electronic Prescribing, 2008).

 In April 2004, two large insurance companies used the system that used the system.  With 18 months of information collected, the charges for the three-tier program before and after the doctors began to e-prescribe.  More than 1.5 million people filled a total of 17.4 prescriptions.  Tier 1 drug prescriptions increased 3.3 percent, while second and third tier drug prescriptions decreased.  It was discovered, however, that even when not e-prescribing, doctors tended to write the prescriptions for the lower-cost drugs anyway.  Scholars suggest that e-prescribing medications could save $845,000 a year per every 100,000 patients requesting prescriptions (Electronic Prescribing 2008).

In conclusion, the two main methods to lower the cost of prescription drugs include the accessibility and availability of generic drugs and the approval of imported drugs from Canada, for example, to the United States.

More and more generic drugs are entering the marketplace.  They are less cost than the original, and just as safe.  However, bureaucratic red tape can make the length of time that it takes for the FDA to approve the drug, difficult for waiting consumers.  The process of attaining FDA approval needs to be streamlined with the generic drug quickly getting onto the market.  For one thing, studies have revealed that the amount of clinical trials necessary for generic drugs is less than the brand-names, therefore, there is nothing but red tape holding the drug back from the marketplace.  With more generic drugs on the market, the price of all prescriptions will decrease.

Another method of cost cutting for prescriptions is the importation of drugs from other countries.  Many people have been importing drugs from Canada for years, and claim they are just as safe and effective.  The FDA argues that drugs from overseas are not as safe as they have not gone through the rigorous testing and clinical trial that a drug must face in gaining approval in the United States.  Nevertheless, if Canadian drugs were allowed on pharmacy shelves in the United States, it would produce a change in the market and reduce drug costs.

With passage of the 2010 health care plan, more Americans will have access to health care.  However, the bill still does not take steps to lower the cost of drugs. These two methods along with tort reform and e-prescriptions can help to make drug prices lower in the United States.


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