The federal government grants pharmaceutical companies market exclusivity for several years after a drug is submitted for approval by the U.S. 12 The resulting system has strained health care payers’ budgets, which in turn creates access challenges for patients. The combination of government-granted exclusivity periods, the industry’s success at extending these periods, and the inability of most public payers to meaningfully negotiate prices has created a system in which pharmaceutical companies can largely charge whatever price they want. There are a number of policies that contribute to high prescription drug prices and excessive quarterly price increases in the United States. 11 This report makes the case that value-based pricing has the potential to better serve the American public by promoting research into products with greater clinical benefit that help meet the country’s health care needs. Moreover, the current pricing structure has distorted pharmaceutical innovation the areas of R&D in which the industry invests do not necessarily reflect the health needs of the U.S. The reality, however, is that there is not a significant relationship between the prices charged by pharmaceutical companies and either their research and development (R&D) spending or the clinical benefit of their products. 10Īs policymakers weigh various proposals that would lower drug prices and limit excessive price increases, the pharmaceutical industry has asserted that high prices are necessary to promote innovation and develop new drugs. 9 As a result, there has been considerable discussion at both the state and federal level on how to lower both overall prescription spending and high underlying prices. 8 American taxpayers also bear the burden of high drug prices, with Medicare and Medicaid spending nearly $290 billion on prescription drugs in 2019. These high prices and price increases have a real impact on patients: Nearly 3 in 10 American adults reported not taking medicines as prescribed in 2019 due to cost. According to GoodRx, drug companies increased the prices of 832 drugs by an average of 4.5 percent in January 2021 and 67 drugs by an average of 3.5 percent in July 2021. 5 A Kaiser Family Foundation analysis of Medicare Part D drugs found a similar result: Half of Part D drugs had list price increases above inflation in 2019, and nearly 15 percent of Part D drugs had list price increases of more than 10 percent. 4 A 2020 study conducted by researchers at the University of Pittsburgh found that the average list price for brand-name drugs increased by more than 150 percent from 2007 to 2018. In addition to starting at a higher price, prescription prices have risen for several decades at an unsustainable rate, higher than inflation.
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