One more - The high cost of prescription drugs: causes and solutions
S Vincent Rajkumar 1,✉
PMCID: PMC7311400 PMID: 32576816
Global spending on prescription drugs in 2020 is expected to be ~$1.3 trillion; the United States alone will spend ~$350 billion1. These high spending rates are expected to increase at a rate of 3–6% annually worldwide. The magnitude of increase is even more alarming for cancer treatments that account for a large proportion of prescription drug costs. In 2018, global spending on cancer treatments was approximately 150 billion, and has increased by >10% in each of the past 5 years2.
The high cost of prescription drugs threatens healthcare budgets, and limits funding available for other areas in which public investment is needed. In countries without universal healthcare, the high cost of prescription drugs poses an additional threat: unaffordable out-of-pocket costs for individual patients. Approximately 25% of Americans find it difficult to afford prescription drugs due to high out-of-pocket costs3. Drug companies cite high drug prices as being important for sustaining innovation. But the ability to charge high prices for every new drug possibly slows the pace of innovation. It is less risky to develop drugs that represent minor modifications of existing drugs (“me-too” drugs) and show incremental improvement in efficacy or safety, rather than investing in truly innovative drugs where there is a greater chance of failure.
Causes for the high cost of prescription drugs
Monopoly
The most important reason for the high cost of prescription drugs is the existence of monopoly4,5. For many new drugs, there are no other alternatives. In the case of cancer, even when there are multiple drugs to treat a specific malignancy, there is still no real competition based on price because most cancers are incurable, and each drug must be used in sequence for a given patient. Patients will need each effective drug at some point during the course of their disease. There is seldom a question of whether a new drug will be needed, but only when it will be needed. Even some old drugs can remain as virtual monopolies. For example, in the United States, three companies, NovoNordisk, Sanofi-Aventis, and Eli Lilly control most of the market for insulin, contributing to high prices and lack of competition6.
Ideally, monopolies will be temporary because eventually generic competition should emerge as patents expire. Unfortunately, in cancers and chronic life-threatening diseases, this often does not happen. By the time a drug runs out of patent life, it is already considered obsolete (planned obsolescence) and is no longer the standard of care4. A “new and improved version” with a fresh patent life and monopoly protection has already taken the stage. In the case of biologic drugs, cumbersome manufacturing and biosimilar approval processes are additional barriers that greatly limit the number of competitors that can enter the market.
Clearly, all monopolies need to be regulated in order to protect citizens, and therefore most of the developed world uses some form of regulations to cap the launch prices of new prescription drugs. Unregulated monopolies pose major problems. Unregulated monopoly over an essential product can lead to unaffordable prices that threaten the life of citizens. This is the case in the United States, where there are no regulations to control prescription drug prices and no enforceable mechanisms for value-based pricing.
Seriousness of the disease
High prescription drug prices are sustained by the fact that treatments for serious disease are not luxury items, but are needed by vulnerable patients who seek to improve the quality of life or to prolong life. A high price is not a barrier. For serious diseases, patients and their families are willing to pay any price in order to save or prolong life.
High cost of development
Drug development is a long and expensive endeavor: it takes about 12 years for a drug to move from preclinical testing to final approval. It is estimated that it costs approximately $3 billion to develop a new drug, taking into account the high failure rate, wherein only 10–20% of drugs tested are successful and reach the market7. Although the high cost of drug development is a major issue that needs to be addressed, some experts consider these estimates to be vastly inflated8,9. Further, the costs of development are inversely proportional to the incremental benefit provided by the new drug, since it takes trials with a larger sample size, and a greater number of trials to secure regulatory approval. More importantly, we cannot ignore the fact that a considerable amount of public funding goes into the science behind most new drugs, and the public therefore does have a legitimate right in making sure that life-saving drugs are priced fairly.
Lobbying power of pharmaceutical companies
Individual pharmaceutical companies and their trade organization spent approximately $220 billion in lobbying in the United States in 201810. Although nations recognize the major problems posed by high prescription drug prices, little has been accomplished in terms of regulatory or legislative reform because of the lobbying power of the pharmaceutical and healthcare industry.
Solutions: global policy changes
There are no easy solutions to the problem of high drug prices. The underlying reasons are complex; some are unique to the United States compared with the rest of the world (Table 1).
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