International Biopharmaceutical Association

MEDICATION EXPENSES IN US TODAY AND TOMORROW

M. Pitsiouni, M.S., Ph.D.

ABSTRACT

The prices United States Citizens pay for medicinal products are far higher than those paid by citizens of any other developed country. Some of the reasons that contribute to that include increased utilization as well as the fact that new drug development is costly and the patent protection for many profitable brand name drugs is expected to expire in the near future. International and domestic cost shifting also contributes to increasing treatment costs for Americans. In this article, various ways of dealing with high drug prices are going to be discussed, such as indentifying new treatment applications for old, widely available and inexpensive drugs or the substitution of brand name pharmaceuticals with equally effective and safe generic products. For chronic disease sufferers, that are on lifetime treatment medication, compliance, step therapy and in-store innovations may constitute viable solutions. Finally, electronic medical records, charity care and a universal healthcare system will also be considered at how they may facilitate the cost relief of expensive medications.

INTRODUCTION

Drug prices in the United States are the highest in the world. The cost of brand name medications in the U.S. is significantly higher in comparison to Canada, India, the United Kingdom and other countries. To save money, American citizens spend more than $1 billion each year on brand name medicinal products from Canadian pharmacies [1]. The U.S. Customs estimates 10 million Americans transport pharmaceuticals through land borders annually. Also, 2 million medication parcels arrive yearly by international mail from Thailand, India, South Africa and other countries [2]. Today, international online pharmacies offer great savings in comparison to American drug prices. At the same time, within U.S. medication prices have been rapidly increasing. Sales of prescription drugs have increased 250 percent from $72 billion to $250 billion between 1995 and 2006, with a concomitant average medication price that has more than doubled from $30 to $68 [3]. For example, the cost of Wyeth-Ayerst's Premarin, an estrogen-replacement medication, that prevents osteoporosis and is the most prescribed drug in the United States, with more than 47 million prescriptions dispensed, climbed 12.1 percent between 1999 and 2000 [4]. The American Association of Retired Persons (AARP) made public numerous studies in which prescription drug prices are increasingly rising at a faster pace than inflation [5]. However, the American Enterprise Institute has disputed that the method that was used overstated drug price inflation [6]. From another point of view, according to the Kaiser Family Foundation (Menlo Park, CA), price hikes account for about 20 percent of the increase in overall drug spending in the '90s. The current economic downturn has only made the situation worse. The American public has resorted to dangerous routes in order to reduce healthcare spending. Between 2007 and 2008, 22 percent of consumers reported going for doctor office visits less often and 11 percent reported purchasing fewer prescription medications [7]. Therefore, the high cost of pharmaceuticals is currently one of the major areas of discussion in the U.S. health care reform debate. In this article, the reasons for the increasingly rising medication cost are going to be discussed together with possible options for mediating drug prices in the future.

WHY ARE DRUGS EXPENSIVE?

Increased Utilization

A study on the factors fueling rising healthcare costs, by PriceWaterhouseCoopers, confirms that increased utilization plays an important role [8]. Some of the causes cited in the study include new treatments and rising consumer demand. Each year drug makers produce totally new treatments for a breathtaking variety of illnesses. These new medicines not only do they improve the quality of patient lives, they also save lives. They prevent life threatening events such as heart attacks and strokes and reduce health-care costs by minimizing the need for hospital stays, surgery and other costly interventions. For example, a National Institutes of Health study found that stroke patients do just as well with clot-busting drugs as they would with angioplasty procedures; saving $4,400 per patient by cutting the need for a lengthy hospital stay [9]. Increased availability and utilization of medications has directly elongated life expectancy in the 21^st century [10]. The average expected lifespan of people has jumped to 77 years of age in comparison to 47 a hundred years ago [11].

In addition, Americans are eagerly spending millions switching from older, less costly drugs to newer, more expensive versions of the same basic medication. Replacement drugs are often distinctively advantageous in comparison to the original ones. For example, allergy treatments used to have a drowsiness side effect before the introduction of Schering-Plough's Claritin[12] and other new antihistamines. By contrast, some improvements can be superficial. According to Dr. Stephen Schondelmeyer, (Head of the Department of Pharmaceutical Care & Health Care Systems, University of Minnesota College of Pharmacy, Minneapolis, MN) "the only thing that changed as Aventis's hypertension drug, Cardizem, evolved over 15 years into the more expensive Cardizem SR and then the patent-extending Cardizem CD was the dosage form, which went from four times a day to two to one”[13].

New Drug Development Is Costly

One reason drugs are expensive is because the new drug discovery and approval process is time, effort and money consuming. It can take from 12 to 20 years and up to $0.8 billion[14] for an experimental drug to move from the research laboratory to the pharmacy shelf. New drug development is multifaceted. Basic research is performed to enhance the understanding of underlying causes of disease. Up to 10,000 compounds are screened for therapeutic properties, 200 to 300 of which enter the preclinical phase to determine pharmacological dosage, formulation and toxicity. About 5 to 6 are found safe and effective in animals and enter the expensive and complicated clinical trials. They are initially tested in small groups of healthy volunteers to confirm the information obtained from animal studies and to gain further insight on the effects of the compound. Then, the new molecules are tested in humans who have the condition for which they will be used. Only one compound may prove to be safe and effective for the condition and will eventually be approved under the tight regulations of the U.S. Food and Drug Administration (FDA) for a license to manufacture and sell this drug[15]. The early phases of development of compounds, that will not become approved drugs, are expensive. The revenue of an approved drug needs to cover its own developmental cost and the development costs of previous failures. Following drug approval, big sums of money is spent on marketing, in educating healthcare providers and conducting post-marketing studies. In addition, companies also spend money on further research to introduce improved versions of existing drugs or new uses for them.

Profitable Patents Are Running Out

When a new medicine is being developed, biotechnology and pharmaceutical companies acquire a drug patent to have the exclusive right to sell the drug for a set time period. Patent protection enables the patent holder to recover the costs of research and development through high profit margins for the branded medication. In the United States, drug patents give twenty years of protection[16], but they are applied for before clinical trials begin, so the profitable life of a drug patent ranges between seven and twelve years. Competition is stiff among drug companies who capitalize to the maximum on their patented drugs before their patent expires and the market is flooded with generic versions of their product. To battle competition and maximize returns on their investment, companies also expend heavily on advertising.

There is one upcoming economic challenge for today’s biopharmaceutical industry; a big number of the currently patented drugs are expected to have their patents expired within a few years of one another. In addition, there are very few upcoming “blockbuster” drugs to replace the top sellers that are losing patent protection and facing competition from less-expensive generic medicines. This phenomenon has resulted in the progressive slowing of prescription drug sales growth in the U.S[17]. Therefore, drug makers are following costly routes to expand and diversify their drug pipelines with treatments that may potentially be the blockbusters of tomorrow. They accomplish that, either by pouring more funds into research for the identification of novel targets, or by acquiring their rivals together with their portfolios. However, as there is increasingly better disease segmentation and a more thorough understanding of patient subpopulations and disease states, new drugs don’t aim at the enormous groups of patients that could bring in many billions of dollars in annual sales. One recent example is Cimzia a new drug for Crohn’s disease that was marketed last year (2008) by UCB [18]. Crohn’s disease is expected to have a market size of just over $1.7 billion by 2013 [19] as opposed to Rheumatoid Arthritis whose market size was estimated at $10 billion for 2008 [20].

International Cost Shifting

Another major reason U.S. medication prices are constantly increasing is that drug makers are forced to give steep discounts to foreign countries. These countries usually have universal healthcare systems and their governments use the bargaining leverage of bulk purchasing to aggressively negotiate lower drug prices. Moreover, price control enforcement in foreign countries is usually the norm. Therefore, the pharmaceutical industry charges American consumers higher prices in order to earn most of its profits in the United States. Critics suggest that foreign countries should either deregulate their markets or increase domestic taxation in order to buy drugs in higher, open market prices. In that way, the earnings of drug makers from foreign countries and United States would be equilibrated. Americans would be buying drugs in better prices while pharmaceuticals would not be deprived of their high earnings that would allow them to keep producing innovative cures. From a different point of view, today United States is the only major country where government price controls are not enforced. To make things worse, although the U.S. government, in the role of drugs purchaser, does negotiate some drug prices, it is forbidden by law from negotiating drug prices for the Medicare program. This in turn allows the pharmaceutical industry profiteering off of tax payers’ money[21].

Domestic Cost Shifting

There is also domestic cost-shifting from government programs to private payers. The government reimbursement rates for Medicare (federal coverage for citizens and long-term residents 65 years and older) and Medicaid (federal coverage for low income people in certain categories, including children, pregnant women, and the disabled) are constantly lowering. This increases the pressures on hospitals and doctors who resort to charging higher rates for their services to private healthcare plans and in turn private payers. Employer and consumer payments in California, rose from 3.6 percent of premiums in 2000 to 9.5 percent in 2004, for health care coverage because of government underpayments, according to data compiled by Milliman for Blue Shield of California[22].

To compound the problem, prescription drug coverage is provided only by Medicare (Part D) and that is just partial, with the remaining of the drug price paid privately by the insured individual. The decreasing Medicare drug reimbursements force people to pay more out of pocket for their medications. On top of that, some people are not eligible for federal healthcare coverage, they are not provided health insurance by an employer and they cannot afford to purchase private health insurance and therefore are forced not to take their medications. In 2007, almost 50 million Americans (about 15% of the population) were without health insurance for at least part of the year[23]. Over the same year, Medicaid provided health care coverage for 39.6 million low-income people and Medicare provided health care coverage for 41.4 million elderly and disabled people[23]. However, enrollment in Medicare is expected to reach 77 million by 2031, when the baby boom generation is fully registered[24]. This is bound to further lower the government reimbursements per person. These problems have become a cause of much political controversy on a national level. In particular, supporters of universal healthcare often indicate other developed countries where single payer, that is government funded, health care results into better health outcomes at lower overall cost[25].

THE FUTURE

Old Drugs

There are two main reasons that old drugs are staying out of use. The first one is that old drugs are no longer covered by patents and they are widely commercially available. Therefore, they are not profitable for pharmaceutical companies, which conduct the most of the clinical trials, to further invest in them. There is also the second reason old effective drugs go unused. Pharmaceutical companies, in their effort to promote their patented and profitable products, constantly bombard patients and doctors with advertisements about their latest products. Nowadays, drug companies spend nearly as much on advertising, marketing and lobbying as they do on research and development. Drug makers stress the educational value of such advertising, noting that many people who might benefit from a drug might not be aware of its existence. Nevertheless, the public should be vigilant about the full range of drugs that are available for a certain condition and inquire with their physician about their complete set of options.

However, clinical trials on old drugs can have many benefits. They can identify applications of old drugs for new diseases. Recently conducted clinical trials on old drugs are bright examples of old inexpensive drugs that have proved life saving. This is the case for magnesium sulfate which was found to prevent pregnant women from a convulsion marked fatal condition, at only $5 a treatment[26]. At this instance the clinical trial was conducted by the British Medical Research Council, which is a government agency. Dichloroacetic acid (DCA) is another example of an inexpensive and widely available compound, which is currently being tested for its potential as an anticancer agent. Health Canada approved a phase I and a phase II trial that is funded by donations and philanthropic foundations and is being performed by the University of Alberta in Edmonton, Canada[27]. Using an old, well studied drug can promote people’s health at low cost. If Health Insurance companies funded not for profit organizations to implement clinical trials on existing low cost drugs, their benefit would be two fold. They would pay less to cover their customers’ health expenses and they would also enjoy tax relief. Government agencies should also be interested in sponsoring clinical studies on existing drugs. That would reduce the federal drug reimbursement costs through the Medicare (Part D) program and promote overall general public health in the most cost effective way.

Another benefit is that trials can determine the long term side effects that may arise and can only be identified when a drug has been used long enough. For example, almost a decade went past before the dangerous heart side effects showed up in Seldane, an antihistamine made by the company that is now known as Aventis. In a similar fashion, it was only several years after the release of Baycol, a cholesterol drug marketed by Bayer, that the drug was recalled from the market after dozens of patients died from side effects. Finally, clinical studies on old medications can also evaluate the effectiveness and side effects of the drug in specialty groups, such as pregnant women and people taking other drugs in combination with the particular drug that is being studied.

Generics

According to FDA: a generic drug is a copy that is the same as a brand-name drug in dosage, safety, strength, formulation, quality, performance and intended use[28]. Therefore, FDA approves the marketing of generic drugs only when they are identical or bioequivalent to the brand name counterpart. Once the Abbreviated New Drug Application (ANDA) for a generic drug is approved, FDA updates its Approved Drug Products list, also known as the Orange Book (http://www.fda.gov/cder/ob/), and annotates the list to show equivalence between the reference listed drug and the approved generic. Generics are produced and marketed without patent protection. Although generic medications may still have a patent on the formulation they must contain the same active ingredients as the original brand name drug.

Generic products can provide patients and insurance companies with substantial drug cost savings. There are many reasons generic drug makers can offer their products at distinctively low prices. Generic manufacturers reverse engineer the brand name drug compound instead of incurring the cost of drug discovery. They also save on resources and funds for safety and efficacy clinical trials since the brand name developer has already conducted them. Brand name drug companies have also invested time and funds into media advertising, doctors’ education and free sample distribution. Although this has been done under the original brand name, generic companies can still benefit from these marketing efforts. Once the patent protections afforded to the brand name drug developer expire, generic medications become immediately available by competing companies. As a result, market competition leads to substantial price reduction of both the brand name product and the generic alternatives. Oftentimes the brand company introduces a generic form of the original drug to ensure a head start in the generic market[29].

Critics may note that generic drug competition reduces the earnings of the brand name companies, which are valuable for research and development of new drugs. That in turn may lead to the production of fewer new drugs. However, one should bear in mind that, although this might be correct for small molecule drugs, that are easy to reverse engineer, the case is not the same for biologics (large molecule medications). Biopharmaceuticals, such as therapeutic antibodies, are extremely cumbersome to reproduce in the correct conformation. This is one of the reasons drug makers are increasingly integrating biologics as key parts of the platforms with which they make medicines[30]. Therefore drug makers can easily keep marketing biopharmaceuticals at profit maximizing prices even after their patent protection has expired.

Medication Compliance for Chronic Disease

Good chronic illness management simply entails patients following their doctors’ recommendations and taking their medications. There are immense benefits in the good management of chronic disease. Numerous unnecessary and costly hospital visits originating from chronic maladies, such as diabetes, heart disease and arthritis, can be easily avoided. Based the 2007 American Diabetes Association annual report more than $170 billion a year is spent on diabetes alone. About one-third of patients, that commence a chronic illness drug regimen, discontinue their medication because they feel better, they forget, or they want to avoid the cost. However, medication compliance is one of the primary routes to keep healthy and be frugal financially in the long term. One way patients can achieve this is by taking advantage of programs that are offered by pharmacy benefit management (PBM) companies. PBMs run automated mail-order facilities that fill prescriptions quickly and offer recurrent prescription filling mail programs up to 90-day quantities at a discounted rate.

Step Therapy?

In managed medical care, step therapy may also benefit financially people suffering from chronic illnesses. Step therapy is the practice of beginning medication for a medical condition with the most cost effective and safest drug therapy. This is usually a generic drug that has the lowest copayment and is called first step therapy. The program continues to second step therapy if the patients’ ongoing condition needs further treatment. This usually involves brand name, more expensive medications[31]. However, there is a current debate that differentiates step therapy from programs that encourage the substitution of a brand name medication by the same generic medication. Critics support that step therapy requires certain types of medications within a class of drugs of limited action to be used before a second-line medication is tried. This may keep people from receiving needed treatment and lead them to need more in the long term[32]. In a recent study that was sponsored by Pfizer Inc., insurance claims for 11,851 people with hypertension under a step therapy program were analyzed. Their use of employer-sponsored healthcare services was compared with a comparison group of 30,882 antihypertensive drug users with no step therapy regimen. The step therapy group of patients had 3.1 percent lower drug costs, which later declined each subsequent quarter. However, it was found that as medication usage was reduced, hospital admissions were increased. By the end of the two year study, the step therapy patients had claimed $99 more in healthcare coverage per quarter, on average, than the non step therapy group[33].

In-Store Innovations

In-store medical care is one of the latest trends to tackle the soaring costs of health. CVS, the national drugstore colossus, provides in-store medical clinics aiming at treating patients with chronic illnesses and contributes to keeping them healthy and away from costly hospital visits[34]. CVS’s "MinuteClinics" at its outlets are staffed by nurse practitioners who both collect patients' information and motivate them to continue their treatment. There is plenty of space for savings in that respect. In 2005 alone, there were about 100 million physician office visits on "low-acuity" grounds such as sore throats. Some of these clinics are also on the campuses of CVS’s corporate clients, such as AT&T. This should contribute to overall savings in time and money. Although critics may argue that these clinics might provide subpar service, such feedback may improve the quality of the currently provided services. If MinuteClinics ever catch on, they might substantially benefit the patients, the healthcare system and CVS. Another in-store innovation that is offered by the same company is called Maintenance Choice. This program offers the discounted prices of mail-order prescriptions but allows patients to pick up their medications in store. Maintenance Choice, as a new form of service, is also to be tested in the marketplace arena within the next few years[34].

Electronic Medical Records

The National Institute of Medicine recently reported that each year prescription errors alone kill about 7,000 patients and cost the U.S. health-care system as much as $6 billion[35]. One of the most straightforward functionalities of Electronic Medical Records (EMR) is computerized drug-prescribing which replaces hand written Physicians’ notes. To the very least EMRs will spare pharmacists from having to decipher handwriting that ranges from confusing to flat-out illegible. Most importantly, electronic prescription writing will eliminate the wrongful dispensation of drugs, which may in turn prove unsafe and expensive, if extra medical care is needed. In electronic systems, drugs and dosages are selected from menus to prevent input errors, and pharmacists don't need to re-enter information[36].

Moreover, electronic prescriptions will allow for the easy automatic detection of drug-drug interactions. These include interactions among generics with brand name drugs, among brand name drugs and among generics. Electronic prescribing will also facilitate the prevention of mis-dosing. This will save both lives and money in the long run. Another “side effect” of EMRs will be the ability of pharmacists to identify patients that have discontinued their medication for chronic illnesses. Then they will be able to contact the patient and remind/motivate them to order refills and continue managing their chronic illness effectively. E-prescribing can also directly cut costs; last year, a study from Brigham and Women's Hospital showed that prescribing software, that can identify both generic drug options and medications covered by a patient's insurer, has the potential to save up to $845,000 for every 100,000 patients each year[37]. Also electronic prescribing will be a great tool for the assignment of patients in first step or second step medication in step therapy programs. Tampa Bay is the latest example of an effort towards paper-free medical prescribing. Tampa officials plan to digitize every prescription and train every physician in electronic prescribing in the 10-county area surrounding Tampa and St. Petersberg, Fla., over the next two years[38].

Charity Care

Charity care for people that cannot afford to pay for health insurance is sometimes available by non-profit foundations, religious orders, or government subsidies. An example is the Massachusetts health care reform law that was enacted in 2006[39]. Although people who can afford private insurance are encouraged to do so, under this program the state provides subsidized insurance plans for people who cannot pay for coverage. The City of San Francisco also has a similar citywide healthcare program for its uninsured residents. The program started two years ago with two clinics and now covers twenty seven clinics and is initially available to those below a certain income threshold[40]. Although charity care is immensely beneficial for many Americans in need, it does not solve the problem of rising drug prices and healthcare costs for the total of the American public. According to the Institute of Medicine at National Academy of Sciences, the United States is the only wealthy, industrialized nation that does not ensure that all citizens have (some kind of) health coverage[41].

Towards Universal Healthcare

Universal healthcare could be as close as a “universal” solution for Americans facing high drug prices. In such a system the government would be the only customer of the drug companies. The government would buy drugs in bulk and have the most bargaining leverage to buy them at reduced prices. This is the case for countries in the rest of the world that have any kind of universal health care system. One could argue that the drug company profits may be reduced, threatening the development of new treatments or even the companies’ existence. But this would not be the case for two reasons. Companies would not need to spend as much money on marketing and advertising their products anymore, which frequently is as expensive as developing a new drug. In addition, companies would still be making a profit on their patented drugs, for which they hold a monopoly. At the same time, drug companies would spend their money and resources on what they know how to do best, developing new drugs. Moreover, the competition among drug companies to make the best deal with the only customer (the government) would put a lot of pressure on them to develop the best quality drugs. In the long run, the government’s deals for the best drugs will keep people healthier and save on hospitalization costs etc.

Proponents on the single payer healthcare system argue that the 50 million of uninsured Americans create costs that are shared by all. In addition, universal healthcare coverage would make managed care reviewers redundant; saving time, money and resources as well as restoring the conventional physician-patient relationship[42]. On the other hand, opponents argue that the public should have the freedom to opt out of health insurance and that a single payer system will lead to tax increases and bureaucratic inefficiencies. Others note that the current system contributes to higher costs and support the concept of free market solutions to improve efficiency, innovation, and consumer active participation. Evidently, there is still much political controversy over whether a government mandated system of universal healthcare should be implemented in the United States of America.

REFERENCES

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