Why are new drugs so expensive? The absurdly high cost of newly marketed brand name drugs.

In the JAMA (Journal of the American Medical Association) there are occasionally amazingly interesting snippets of information, not long enough to be articles, written as letters. In the early June 2022 issue, a letter entitled Trends in Prescription drug Launch Prices 2008-2021 was an eye opener. I have known for a long time that new drugs come out with high prices. In general, for this reason, I rarely prescribe new drugs unless they substantially improve my patients' lives and are covered by their insurance. The costs of new drugs are absolutely beyond what anyone but the most fabulously rich people can afford. 

Harvoni, a drug to treat a very common form of blood borne hepatitis that is responsible for a substantial proportion of cases of liver failure, costs about $90,000 for a 12 week course.

Ozempic, a weekly injection that works great for type 2 diabetes and is very effective in helping people lose weight, costs over $1000 per month.

Humira, an injection sometimes given twice weekly for conditions such as rheumatoid arthritis and Crohn's disease, costs up to $9,000 per month.

Ocrevus, a twice a year infusion for multiple sclerosis, costs about $37,000 per treatment not counting the associated infusion center services.

Entresto, which is becoming standard of care for treatment of severe heart failure, costs around $600 per month. 

An Anora Ellipta inhaler, for asthma or COPD, costs just shy of $500.

Invega sustenna, a monthly injection for treatment of some of the symptoms of schizophrenia, costs nearly $2,500.

This list is just a handful of random drugs that people can't actually afford but frequently need. 

So--this JAMA letter. It says that the prices of new drugs have gone up exponentially since 2008. In 2008 the median launch price per year for new drugs was $2,115. In 2021 it was $180,000. The most expensive of these drugs were for rare diseases and for cancer, but there are also drugs for urinary incontinence, a cream for acne (just a combination of two chemicals available over the counter) and a new birth control pill. The best deal looks like it might be the birth control pill, which costs around $200 per month (it is nothing special.)

Reading these prices makes a person shake her head in disbelief, or say something best not said in the presence of children. And then ask "why?"

The best answer is "because they can" but it ignores the more important questions of how it got this way, why we permit it to continue and what we should do about it.

How did it get this way? In my memory, after over 30 plus years of practice, it seems to have gotten this way very slowly and gradually. I remember the release of some amazing drugs that changed the outlook for various conditions. Prilosec to treat heartburn--a drug that actually worked to reduce acid in the stomach. It was amazing. Prozac--an antidepressant that didn't make people overweight and sedated and brought them reliably out of episodes of depression. Certain antibiotics that could be taken once a day rather than several times and worked as well as injections. 

When these came out they were expensive and insurance companies were loath to pay for them, but they weren't that expensive. Then came some new cancer drugs and some drugs for psychosis that were more expensive. If they were truly necessary they were paid for by insurance or by patients. Eventually there came the 5 figure drugs. It seemed unlikely that anyone would use them, but they eventually became part of the tools of specialty physicians. Then there were more. And here we are. The most expensive drug in history is over $2 million, a one time gene therapy to treat spinal muscular atrophy, a fatal disease of children.

Who does this hurt? It is often nice at this point to tell a story of someone who is impacted by this issue, a person who dies of a disease perhaps because of inability to afford the medication. There may be many, but I don't know their stories. Generally when my patients are diagnosed with cancer they become eligible for some kind of coverage for medications that means they don't pay anything. The drugs might be supplied for them under a compassionate use program from the drug company or they end up on Medicaid, the state sponsored comprehensive healthcare insurance system, that pays for needed treatment. 

These safety nets do not, however, necessarily protect seniors. In an article in the New England Journal of Medicine entitled "Your Money or Your Life," out of pocket costs for patients on Medicare with cancer were evaluated. For oral medications rather than infusions, the patient's share of the cost is often huge, around $12,000+ dollars. These drugs are actually both more convenient and less expensive overall, but are paid out of Medicare part D, which leaves more of the cost to the patient. I imagine there are people dying because of inability to pay or unwillingness to spend their entire nest egg on a drug.

Why do we allow prices to be so high? The safety nets are part of the problem. The fact that drug companies provide medications via coupons or compassionate use, and insurance companies pay for them after  physicians fill out endless prior authorization forms means these costs are, in fact, what the market will bear. 

Another reason for high costs of the very new drugs, ones that do not resemble other drugs at all and solve whole new problems, is that drug companies will try to recoup their costs by charging the few patients who need these drugs a very lot of money, which insurance companies will often cover because there aren't that many patients who need them. 

But the real reason for these high prices is that they are part of our economic ecosytem. Pharma is doing great. Drug companies outperform the stock market in good times and even more in economic downturns. These high prices, to the extent that they don't lead to slowing in sales, support an industry that supports a vast number of jobs and contributes significantly to our gross domestic product. Costs like this are so huge that they are most often borne by the government, and so they directly lead to tax money being pumped back into the economy. There are also the many places that such huge amounts of money leak out of what might appear to be a closed system into other industries, including the many that support the whole process of turning scientific ideas into drugs and prescriptions into pills in patients' hands. There are also some weird ways that seemingly arbitrarily and almost comically expensive drugs support nearly unrelated activities. The only one of these that I am personally familiar with is how my community health center's pharmacy supports its sometimes un-reimbursed care for our patients living in poverty.

We have a pharmacy right in the clinic, which is great. I get to talk to pharmacists about patients and figure out the best way to get them treated, including choosing the right drugs and making sure patients can afford them. This pharmacy provides all sorts of medications inexpensively to our patients, which they source at discount prices. They are then reimbursed by third party payers at a higher price. 

One drug I mentioned above, Humira, is available to our uninsured patients whose income puts them in the most favorable tier of our sliding scale at a cost of about $5 per month rather than the usual $9,000. I'm not sure how much money each of these transactions nets the pharmacy, but it is substantial. Because of this, as well as grants and such, we can happily provide care for people who have no ability to pay us. This 340b program has been in existence for many years and also applies to some hospitals which serve low income populations.

How could we bring these prices down? Certainly some countries negotiate drug prices with pharma manufacturers. Governments can choose not to participate in payment for drugs which are too expensive and don't significantly improve treatment for a condition. The US does not do this. We could fully fund pharmaceutical labs to produce drugs which would then be sold at a reasonable price, allowing government insurance such as Medicare part D and Medicaid to avoid these high costs. 

But high prices of drugs end up putting money into so many pockets that there is not much incentive to make these changes. Many of these drugs eventually become less expensive as they lose their patents and generics come around, or so we tell ourselves. In fact, many of these very expensive drugs remain mostly high priced for over a decade after they come out. Drug companies also seem to pace the release of new drugs so that something slightly better comes out of the pipeline just as a really good drug becomes affordable. Sometimes patents are prolonged by slightly changing formulations or dosages or indications.

Is there actually a problem? (spoiler alert: yes.) If low income people can get expensive drugs and if the money eventually comes back into the economy anyway, is there really any reason to battle the high cost of drugs? Yes, there is. Insurance companies do end up paying these costs, and that results in increasing insurance costs to everyone. People with Medicare and private insurance find themselves responsible for paying a portion of some of these high cost drugs, exacerbating poverty and limiting quality of life. The patient's share of these crazy high costs can be huge. All of the jobs I mention and contribution to the GDP and the stock market don't benefit most people and certainly don't benefit the people who are most harmed by high drug prices. 

Inflated drug costs are borne in large part by the government, via insurance like Medicare, Medicaid and through the VA. So money is going into the government via taxes and out as payments to drug companies, redistributing money meant to pay for things that benefit everyone, to wealthy corporations. We elect our government at least partly with an expectation that they will spend our money wisely, for things that give us good value. I would argue that many prescription drugs do not constitute good value. Some insurance companies, private or government sponsored, simply refuse to pay for expensive medications, frustrating doctors and patients. Perhaps working to ensure drug prices are not excessive would be a better way to get the excellent health outcomes offered by pharmaceutical advances rather than allowing them to be unaffordable.

The incentive to do something about high drug prices will have to come from consumers demanding some kind of governmental regulation. Perhaps this will be by allowing government to negotiate drug prices with pharmaceutical manufacturers--since that works in other countries. Though their profits are obscene, I do not fault drug companies for being successful. They do produce some pretty amazing medications, including recently an mRNA vaccine for Covid that saved millions of lives, a class of drugs for cancer that can halt or cure certain advanced cancers and some newer drugs for diabetes that can also prevent heart disease. They need to be able to do what they do as efficiently as possible and without being regulated into failure. The situation as it now stands, however, is not supportable.