That's leading many observers to question what exactly causes the U.S. market to support the world's highest prescription drug prices.
The drug industry's leading trade organization, the Pharmaceutical Research and Manufacturers of America, noted in a blog post in April that stated such claims are often exaggerated and often only focused on the list price.
The organization claims that what's often ignored is the fact that private insurers, Medicaid programs and pharmacy benefit managers negotiate prices that are lower than the published retail price.
But even taking that into consideration, the U.S. pays a high price for pharmaceuticals compared to the rest of the world. According to a research brief released in May by the Kaiser Permanente Institute for Health Policy, the U.S. spends more on prescription drugs than any other nation in the developed world, accounting for 12% of total health spending.
The report found the U.S. spent $1,010 per capita on pharmaceuticals in 2014, while per capita spending of the next highest country, Germany, was $668.
“In the U.S., we have many purchasers trying to buy products from the drug companies and in most of the other countries they have only one purchaser and that's the government,” said Gerard Anderson, professor of health policy and management at Johns Hopkins Bloomberg School of Public Health.
Unlike in the U.S., many foreign countries regulate drug prices, setting limits on the amount they pay for medications, thus giving them more leverage when negotiating.
U.S. payers on the other hand, often accept a higher price set by the drugmakers, which they can in turn offset with higher co-pays to patients.
Anderson said other countries benefit from the prices paid for drugs in the U.S., estimating as much as 50% of drug profits come from sales in the U.S.
“We are essentially subsidizing the world's research and development in pharmaceuticals,” Anderson said. “I'm not sure why we need to subsidize Germany or Japan, but we do.”
The National Health Service in the United Kingdom, an agency under the government's single-payer system, regularly assesses the cost of drugs provided to residents and uses incentives to keep prices down.
The pharmaceutical industry argues the price of breakthrough medications like Repatha reflects both research and development costs and the overall value the products offer patients in terms of improved health outcomes.
An analysis released last November by the Tufts Center for the Study of Drug Development estimated the average cost to develop a medication that's ultimately approved by the U.S. Food and Drug Administration as about $2.6 billion.
But a New England Journal of Medicine article published last May argued the average drug development cost was lower than the Tufts estimate because of the large public contribution that the government and academic research institutions make in the development of innovative therapies like Gilead Sciences' hepatitis C drug Sovaldi.
“Of course, it is extremely expensive and risky to develop a new medication, and inevitably many promising new treatments will fail before they can be marketed,” wrote author Dr. Jerry Avorn, a professor of medicine at Harvard Medical School. And drug companies have to make up this cost elsewhere.
“But as risky as drug development is, the pharmaceutical and biotech industries remain among the most profitable sectors of the U.S. economy and actually spend only a small fraction of their revenues on truly innovative research,” Avorn added.
Anderson estimated companies invested up to 15% of their profits toward research and development of new drugs while devoting as much as 25% to marketing.
“When we pay the higher price, we pay for a lot more marketing,” Anderson said. “We don't get a lot more research and development.”
Both Repatha and the recently approved medication Praluent from Sanofi and Regeneron Pharmaceuticals belong to a new class of cholesterol-fighting drugs known as PCSK9 inhibitors. Such drugs—viewed by many as the first real alternative to statin drugs—can lower levels of low-density lipoprotein cholesterol by as much as 75% when used alongside older statins.
But the approvals of Praluent and Repatha have raised questions about their cost effectiveness. A February article in Health Affairs estimated the long-term use of PCSK9 inhibitors could set the price for treatment with such drugs significantly higher than that of Sovaldi's initial price of $84,000. Unlike that medication, where a typical treatment regimen lasts 12 weeks, PCSK9 drugs could be taken for years to manage high cholesterol.
