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  • Writer's pictureWilliam Miller, MD

The High Cost of Drugs in the US.

Updated: Aug 9, 2022

The cost of prescription drugs in the US is the highest in the world and by a substantial margin. We pay over 250% more for medications than similar countries. If a person is fortunate enough to have health insurance, this translates into higher health insurance premiums and higher drug copayments. If a person qualifies for government sponsored health coverage, such as MediCal, then those costs are passed on to taxpayers. If a person has no insurance, then it may mean that they cannot afford medications that could be lifesaving, prevent worsening illness or relieve suffering. The expense to our healthcare system resulting from delaying treatments due to costs, including cost of prescription medications, is estimated to be over $140 billion per year.

The modern pharmaceutical industry is relatively new and only gained momentum in the 1950’s. Prior to that, there were limited drugs available to treat disease. For example, penicillin, the first true antibiotic, was discovered in 1928 by the Scottish physician Alexander Fleming. It wasn’t until 1942 that it could be purified and produced to start treating patients.

Drugs to treat heart disease were also not very common. For example, while foxglove was used by Native American healers for centuries to treat what we know today as congestive heart failure, it wasn’t until 1930 that digitalis was first isolated from the foxglove plant and then later produced as the drug digoxin that we still use today.

Opium extracts were used by Chinese herbalists since ancient times to treat pain and diarrhea. A mixture of opium and other herbs was used in Europe starting in the 1600’s and later was refined as tincture of opium, also known as laudanum. Morphine was isolated from opium in the early 1800’s and the first synthesized opiate, heroin, was produced in 1874. This was followed by the development of other synthesized opiate pain relievers such as oxycodone (Percocet) in 1916, hydromorphone (Dilaudid) in 1923, methadone in 1937, and hydrocodone (Vicodin) in 1943. It wasn’t until World War 2, that large scale manufacture of morphine and other opiate pain relievers began.

Prior to World War 2, most drugs were derived as extracts from plants. Some, such as insulin, were extracted from the organs of animals. This, of course, required the cultivation of large amounts of the plants or animals to produce a relatively small amount of the drug. Purification was a complicated and expensive process. During the period of 1945 to about 1970, there was a nearly complete transformation of the pharmaceutical industry to the chemical synthesis of drugs. This allowed for cheaper mass production. Quality and purity were easier to control. The price of drugs in the US actually went down as a result.

Things started to change in the 1980’s and by the end of the 1990’s the cost of US drugs had tripled from just a decade earlier. There are many factors that played a role. One was the rapid development of new drugs. New antibiotics flourished and expanded to not just treat bacterial infections, but also fungal, parasitic, and viral infections. Cardiac and blood pressure drugs rapidly increased in numbers as did new drugs to lower cholesterol. Oral contraceptives came into production. The rate of development of new chemotherapy agents to treat cancer increased. Looking back, it is hard to know how many drugs were available to the average country doctor at the at the start of the 20th century, but it was probably less than 100. Today, there are over 20,000 actively prescribed drugs approved by the Food and Drug Administration.

With such an increase in the number of drugs, especially similar ones used to treat the same maladies, the pharmaceutical companies needed a way to get their new drugs marketed. Since prescription drugs require, well, a prescription, the first focus of drug advertisement was to physicians. This often including giving doctors gifts, sometimes expensive ones, in return for prescribing their drug. Since doctors were not the ones paying for the medications, the usual free market feedback was absent and drug prices soared. As the costs of drugs began to rise, states like California began to pass laws limiting or banning gifts to doctors from drug companies. In response, drug companies started targeting patients with “Ask your doctor” ads. In 2020, the pharmaceutical industry spent $6.58 billion on advertising.

Insurance companies responded to the rising cost of medications by limiting what drugs they would pay for to a restricted list called a “formulary”. The insurance company negotiates deals with drug companies for lower prices in return for placing a drug on their formulary.

Medicare, as America’s largest single-payer, soon began to follow suit. Fearing a loss of profit, drug companies began to pour hundreds of millions of dollars into lobbying Congress to ban Medicare from negotiating the cost of drugs. In 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act, which created Medicare Part D (see the July 25th Miller Report). Congress sold this to the American people by claiming that it would expand availability of drugs to seniors. However, it also banned Medicare from negotiating drug prices.

In 2010, an attempt was made to remove the ban on Medicare’s negotiation ability and also move towards regulating drug prices in the US. Every other developed country in the world does this today as a means of controlling the cost of drugs in their country. This attempt was the Affordable Care Act, also known as Obamacare. Much of the resistance to Obamacare was from the pharmaceutical industry lobby. The resulting legislative compromise was that the government would pay the gap so that the cost to seniors would be lower, but the drug companies would still make the same profits. The cost of this, of course, is passed on to taxpayers.

The Journal of the American Medical Association (JAMA) has reported that in the years between 2000 and 2018, the top 35 US drug manufacturers made a combined gross profit of $8.6 trillion. Last year, the pharmaceutical industry spent $265 million lobbying Congress. In next week’s Miller Report, we will examine some possible solutions to this problem including the currently proposed Inflation Reduction Act of 2022, which includes language that will allow Medicare to negotiate drug prices and proposes a $2,000 out-of-pocket cap on drug expenses.

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