Rising drug prices the fault of insurers, not drug companies

Rising costs of prescription drugs are becoming a major political issue, and insurance and drug companies are blaming each other.
Rising costs of prescription drugs are becoming a major political issue, and insurance and drug companies are blaming each other. Los Angeles Times/TNS

Republican voters hate Obamacare, but they hate high prescription drug prices even more. Health care scholar Avik Roy recently pointed to the polls as a reason the GOP must develop a “clear plan to tackle the high and rising price of branded prescription drugs.” He proposed a number of measures aimed at reining in supposedly greedy pharmaceutical firms.

But Roy, like many others who have weighed in on the cost of medicines, overlooks two key points. First, the very real financial pain many Americans feel at the pharmacy counter is the fault of insurers – not drug companies. Second, the obsessive focus on cost obscures the vastly higher value of new drugs.

For most Americans, the price of drugs means the co-pays or co-insurance they fork over when picking up prescriptions. Insurers, not drug manufacturers, set those rates and they’ve been increasing cost-sharing requirements for years. Of those who buy individual health plans through their jobs, a record 46 percent must pay their first $1,000 of medical expenses.

The insurance industry has managed to pull the wool over Americans’ eyes and convince them that drug prices aren’t tied to the pharmaceutical industry’s investments in research and development. That’s intuitively and factually wrong.

Since 2000, drug firms have spent more than $500 billion developing new medicines. Research costs last year alone totaled almost $59 billion, up from $15.2 billion in 1995. The pharmaceutical sector spends five times more on R&D than aerospace, and two and a half times more than the software industry.

Much of this money goes toward the hundreds of potential treatments that never make it to market. Of those few medicines that enter human testing, just 12 percent win federal approval. The high failure rate is why creating just one FDA-approved medicine costs nearly $2.6 billion.

Drug companies don’t have “infinite pricing power,” as critics claim. Just look at the fierce competition among the makers of hepatitis C treatments. Gilead, the first company to enter the market, priced its two cures, Sovaldi and Harvoni, at $84,000 and $94,500 for full courses of treatment.

Soon other firms entered the market, sparking a fierce price war that led to 50 percent discounts for insurers. Hepatitis C drugs now cost less in the U.S. than in Europe.

Most patients don’t know this – and how would they? Insurers largely pocketed the discounts instead of passing them along to consumers.

Critics’ single-minded focus on drug prices ignores the immense value that modern medicines deliver to patients. Pegasys – the previous “best practice” treatment for hepatitis C – required weekly injections for as long as 48 weeks. Since few patients completed treatment due to severe side effects, much of the drug was wasted. The newer treatments are vastly more effective, curing 90 percent of patients in just 12 weeks, with mild side effects.

And let’s not forget the price of not using these drugs. One in three patients with the hepatitis C virus eventually develops liver cirrhosis, which can require a transplant. A “routine” liver transplant costs close to $300,000.

New and better drugs aren’t a problem; they’re the solution to America’s worsening chronic disease burden. Demonizing the creators of these medicines will do nothing to bring down patients’ skyrocketing co-insurance payments and deductibles. But it would sap investors’ enthusiasm to pour money into expensive research that ultimately saves lives.

Peter J. Pitts, a former U.S. Food and Drug Administration associate commissioner, is president of the Center for Medicine in the Public Interest, a research and advocacy group funded in part by the pharmaceutical industry. He can be contacted at