Prescription costs are a common health care cost for many people and also the source of economic hardship for some.
Prescription costs is a vague term: It can either mean the entire cost of a prescribed drug or health aide (a nebulizer, a wheelchair, etc.) - or just the out-of-pocket prescription cost for those with health insurance, since some of it may be paid by a third party. Prescription costs are a regular health care cost for the sick and may mean economic hardship for the underprivileged. Prescription costs in the U.S. include deductibles, co-payments, and upper limits in coverage.
As of 2017, prescription costs range from just more than 15% in high income countries to 25% in lower-middle income countries and low income countries.:418
Pricing any pharmaceutical drug for sale to the general public is daunting. Per Forbes, setting a high ceiling price for a new drug could be problematic as physicians could shy away from prescribing the drug, because the cost could be too great for the benefit. Setting too low of a price could imply inferiority, that the drug is too "weak" for the market. There are many different pricing strategies and factors that go into the research and evaluation of a future drug’s price with whole departments within US pharmaceutical companies like Pfizer devoted to cost analysis. Regardless of the pricing strategy the common theme within all factors is to maximize profits.
This chart shows discrepancies in drug pricing in different countries, which indicates differences in both market conditions and government regulation. For instance, Canada has a drug ceiling price that drug prices cannot exceed.
A study has placed the amount spent on drug marketing at 2-19 times that on drug research.
The table shows research and development statistics for pharmaceutical companies as of 2013 per Astra Zeneca.
|Pharmaceutical company||Number of drugs approved||Average R&D spending per drug (in $ Millions)||Total R&D spending from 1997-2011 (in $ Millions)|
|Johnson & Johnson||15||$5,885.65||$88,285|
|Eli Lilly & Co.||11||$4,577.04||$50,347|
|Merck & Co Inc.||16||$4,209.99||$67,360|
|Bristol-Meyers Squibb Co.||11||$4,152.26||$45,675|
Severin Schwan, the CEO of the Swiss company Roche, reported that Roche’s research and development costs amounted to $8.4 billion, a quarter of the entire National Institutes of Health budget. Given the profit-driven nature of pharmaceutical companies and their research and development expenses, companies use their research and development expenses as a starting point to determine appropriate yet profitable prices.
Pharmaceutical companies spend a large amount on research and development before a drug is released to the market and costs can be further divided into three major fields: the discovery into the drug’s specific medical field, clinical trials, and failed drugs.
Drug discovery is the area of research and development that amounts to the most amount of time and money.[according to whom?] The process can involve scientists to determine the germs, viruses, and bacteria that cause a specific disease or illness. The time frame can range from 3–20 years and costs can range between several million to tens of millions of dollars. Research teams attempt to break down disease components to find abnormal events/processes taking place in the body. Only then do scientists work on developing chemical compounds to treat these abnormalities with the aid of computer models.
After "discovery" and a creation of a chemical compound, pharmaceutical companies move forward with the Investigational New Drug (IND) Application from the FDA. After the investigation into the drug and given approval, pharmaceutical companies can move into pre-clinical trials and clinical trials.
Drug development and pre-clinical trials focus on non-human subjects and work on animals such as rats. This is the most inexpensive phase of testing.
The Food and Drug Administration mandates a 3 phase clinical trial testing that tests for side effects and the effectiveness of the drug with a single phase clinical trial costing upwards of $100 million.
After a drug has passed through all three phases, the pharmaceutical company can move forward with a New Drug Application from the FDA. In 2014, the FDA charged between $1 million to $2 million for an NDA.
The processes of "discovery" and clinical trials amounts to approximately 12 years from research lab to the patient, in which about 10% of all drugs that start pre-clinical trials ever make it to actual human testing. Each pharmaceutical company (who have hundreds of drugs moving in and out of these phases) will never recuperate the costs of "failed drugs". Thus, profits made from one drug need to cover the costs of previous "failed drugs".
Overall, research and development expenses relating to a pharmaceutical drug amount to the billions. For example, it was reported that AstraZeneca spent upwards on average of $11 billion per drug for research and developmental purposes. The average of $11 billion only comprises the "discovery" costs, pre-clinical and clinical trial costs, and other expenses. With the addition of "failed drug" costs, the $11 billion easily amounts to over $20 billion in expenses. Therefore, an appropriate figure like $60 billion would be approximate sales figure that a pharmaceutical company like AstraZeneca would aim to generate to cover these costs and make a profit at the same time.
Total research and development costs provide pharmaceutical companies a ballpark estimation of total expenses. This is important in setting projected profit goals for a particular drug and thus, is one of the most necessary steps pharmaceutical companies take in pricing a particular drug.
Patients and doctors can also have some input in pricing, though indirectly. Customers in the United States have been protesting the high prices for recent "miracle" drugs like Daraprim and Harvoni, both of which attempt to cure or treat major diseases (HIV/AIDS and hepatitis C). Public outcry has worked in many cases to control and even decide the pricing for some drugs. For example, there was severe backlash over Daraprim, a drug that treats toxoplasmosis. Turing Pharmaceuticals under the leadership of Martin Shkreli raised the price of the drug 5,500% from $13.50 to $750 per pill. After denouncement from 2016 presidential candidates Hillary Clinton and Bernie Sanders, Turing Pharmaceuticals decided to reduce the price.
With the recent trend of price gouging, legislators have introduced reform to curb these hikes, effectively controlling the pricing of drugs in the United States. Hillary Clinton announced a proposal to help patients with chronic and severe health conditions by placing a nationwide monthly cap of $250 on prescription out-of-pocket drugs.
Research for a drug that is curing something no one has ever cured before will cost much more than research for the medicine of a very common disease that has known treatments. Also, there would be more patients for a more common ailment so that prices would be lower. Soliris only treats two extremely rare diseases, so the number of consumers is low, making it an orphan drug. Soliris still makes money because of its high price of over $400,000 per year per patient. The benefit of this drug is immense because it cures very rare diseases that would cost much more money to treat otherwise, which saves insurance companies and health agencies millions of dollars. Hence, insurance companies and health agencies are willing to pay these prices.
Policy makers in some countries have placed controls on the amount pharmaceutical companies can raise the price of drugs. In 2017, Democratic party leaders proposed the creation of a new federal agency to investigate and perhaps fine drug manufacturers who make unjustified price increases. Pharmaceutical companies would be required to submit a justification for a drug with a “significant price increase” within at least 30 days of implementation. Under the terms of the proposal, Mylan’s well-publicized price increase for its EpiPen product would fall below the criteria for a significant price increase, while the 5000% overnight increase of Turing Pharmaceuticals Daraprim (pyrimethamine) would be subject to regulatory action.
When the price of medicine goes up the quality of life of consumers who need the medicine decreases. Consumers who have increased costs for medicine are more likely to change their lifestyle to spend less money on groceries, entertainment, and routine family needs. They are more likely to go into debt or postpone paying their existing debts. High drug prices can prevent people from saving for retirement. It is not uncommon for typical people to have challenges paying medical bills. Some people fail to get the medical care they need due to lack of money to pay for it.
Consumers respond to higher drug prices by doing what they can to save drug costs. The most commonly recommended course of action for consumers who seek to lower their drug costs is for them to tell their own doctor and pharmacist that they need to save money and then ask for advice. Doctors and pharmacists are professionals who know their fields and are the most likely source of information about options for reducing cost.
There can be significant variation of prices for drugs in different pharmacies, even within a single geographical area. Because of this, some people check prices at multiple pharmacies to seek lower prices. Online pharmacies can offer low prices but many consumers using online services have experienced Internet fraud and other problems.
Some consumers lower costs by asking their doctor for generic drugs when available. Because pharmaceutical companies often set prices by pills rather than by dose, consumers can sometimes buy double-dose pills, split the pills themselves with their doctor's permission, and save money in the process
Prescription drug prices in the United States have been among the highest in the world. The high cost of prescription drugs became a major topic of discussion in the new millennium, leading up to the U.S. health care reform debate of 2009, and received renewed attention in 2015. High prices have been attributed to monopolies given to manufacturers by the government and a lack of ability for organizations to negotiate prices.
Most people in the countries of the United Kingdom get prescriptions partly or totally paid for by the National Health Service.
In many developing countries the cost of proprietary drugs is beyond the reach of the majority of the population. There have been attempts both by international agreements and by pharmaceutical companies to provide drugs at low cost, either supplied by manufacturers who own the drugs, or manufactured locally as generic versions of drugs which are elsewhere protected by patent. Countries without manufacturing capability may import such generics.
The legal framework regarding generic versions of patented drugs is formalised in the Doha Declaration on Trade-Related Aspects of Intellectual Property Rights and later agreements.
People and governments in developing countries have far fewer financial resources to bear high monopoly prices and drug prices even for patent-protected medicines in these countries are often considerably lower. Profits are often insubstantial and do not proportionally cover development costs. In many cases, a patent holder will license generic manufacturers to sell to low-income countries at low cost. India has less restrictive patent regimes which make the manufacture of generic medications possible sooner, for sale domestically or in other countries where the patent protections do not apply. Typically the cost of making small-molecule drugs is only a very small portion of a developed-country market monopoly price, which makes generic manufacturing very cheap. In contrast, some drugs are inherently expensive to produce, such as the biopharmaceutical drug Cerezyme, typically costing $200,000 per year in the United States.