The US spends a lot on prescription drugs and it is getting worse. Almost all new drugs now are “specialty” drugs, meaning they are typically not oral pills and require some specific handling for administration to a patient. Some are injected, some are infused. All come with very hefty price tags. Two new reports from Health and Human Services shows the role these products play in both drug spending and pricing.
In the first report, the trend in drug spending in recent years is explicated for the years 2016 to 2021. In 2021 over $600 billion was spent on drugs, pre-rebate, and over $400 billion was in the retail setting. Most of the growth was due to price per prescription, rather than growth in the number of prescriptions. Over $300 billion is those extremely expensive specialty medications. 80% of all prescriptions are for generic drugs, but 80% of spending is for brand-name products, usually still on patent. (HHS Report 1)
The second report focused on prices. Readers of this blog pre-epidemic know that I find drug pricing despicable. In January of 2022 the average price increase for drugs was 10% or $150 per prescription. For price increases in July of 2022, th average was 7.8% or $250 per prescription. (different drug mix in July accounts for lower average percent but higher dollar value). Several drugs had price increases over 500%. For 1216 drugs, in the period from July 2021 to July 2022 there was 31.6% average increase. Consumers pay a significant portion of these increases. (HHS Report 2)
Brand-name drugs get patent protection for an extended period, usually ten years or more after they come to market. Drug companies play games to get even longer patent periods. During the patent period, no one else can make the drug so there is no competition. Even where there is competition with a similar drug, the drug companies have an implicit agreement not to compete on the basis of price. Without the patent system drug prices would be far lower. The patent system is a government-granted right, it is not the free market.
So since the patents are granted by the government, I am perfectly fine with government using that system to rein in prices, in fact I think it has to be used that way. Any price increase above the general rate of inflation on a patent-protected drug should be subjected to a 100% federal tax which is used to help shore up Medicare. Any initial price which is determined to result in an excessive profit should result in a similar 100% tax. I don’t like government interference in the free market, but branded drugs are not the free market because of the patent system. Drug company managements are assholes, to say the least, for their pricing practices. They deserve to be hammered for their abuses.