Prescription Drugs Case Analysis

Why are prescription drugs so expensive and how could the costs be reduced?

Consumers in the United States pay nearly twice as much for prescription drugs as individuals in most other countries. This is due to many factors. In the United States, there is a lack of price negotiation to reduce drug prices, drug manufacturers receive product protections through patents and Food and Drug Administration approvals, and an increase in direct to consumer marketing of brand name drugs. Would changing any of these issues lower the cost of prescription drugs?

Unlike many other countries where the healthcare system is government run and drug prices are negotiated or set by the government, drug manufacturers in the United States set the prices of prescription

In 2015, the pharmaceutical industry spent approximately $5.2 billion on advertising directly to consumers. While advertising can encourage individuals to seek treatment for untreated medical conditions, DTC ads often overemphasize the benefits of the drug they are marketing thereby misinforming patients who are in need of medical attention. DTC ads tend to leave out important information substituting a generic statement such as “For more information, ask your healthcare provider.” These ads often increase prescription drug costs because patients will specifically request the brand name drug they have seen advertised not knowing there is a generic version available or believing that the brand name is more effective due to the advertisement. The increase in DTC advertisement has also increased the use of medication to treat conditions that can be managed by lifestyle changes such as diet and exercise. Unfortunately, many drugs are advertised to the public before all safety studies are completed, since the 1970’s approximately 35 drugs have been pulled after being advertised due to safety concerns (Should Prescription Drugs be Advertised Directly to

For example, Medicaid has the Medicaid Drug Rebate Program authorized by Section 1927 of the Social Security Act which requires drug manufacturers to have an agreement with the Secretary of the Department of Health and Human Services in exchange for coverage of most of the manufacturer’s drugs. This agreement provides anywhere from a 13% to 23.1% discount on the retail price of a drug (Medicaid Drug Rebate Program). Also, the Department of Veteran’s Affairs (VA) is guaranteed a discount by federal law and they negotiate additional discounts on top of those guaranteed. The VA regularly negotiates prices up to 50% lower than Medicare (Nelson). These examples, show that negotiation can be a powerful tool in lowering prescription drug prices however, both Medicaid and the Department of Veteran’s Affairs cover 70 million (Leonard) and 21,368,156 (National Center for Veterans Analysis and Statistics) respectively. Most insurance companies do not represent such a large number of potential customers or have the federal government behind them to enforce a mandatory discount. In contrast, Medicare by law is not allow to negotiate, get volume discounts, or even establish a list of preferred drugs. Perhaps if more insurance companies negotiated prices, even when they represent a relatively small number of individuals, we would begin to see a more wholesale change in drug