American medicine is heading into new terrain, a place where a year’s supply of drugs can come with a price tag that exceeds what an average family earns.
Pharmacy benefit manager Express Scripts says last year more than half a million Americans racked up prescription drug bills exceeding $50,000.
Barbara Haedtke of Portland, Ore., knows this all too well. When she was diagnosed with multiple sclerosis in 2001 at the age of 35, she was prescribed Avonex, at a cost of around $10,000 a year. Her health insurance paid most of that, until she and her husband found themselves without jobs during an economic downturn. “We were in the hole, and so $10,000 was a lot of money,” she says. “Under the best circumstances it’s a lot of money, but then particularly it was really difficult.”
The drug company gave her the medication at no charge until she once again had a job with insurance, and for that, she says, she’s really grateful. But the story doesn’t end there. Haedtke used Avonex for about a decade and watched with disbelief as the price more than tripled. She’s now taking a new drug, Tecfidera, that’s priced even higher — $66,000 a year, according to her pharmacy receipt.
The drug is supposed to help reduce the number of episodes that characterize multiple sclerosis, a disease in which nerve fibers gradually degenerate, causing muscle weakness, numbness, loss of balance and even paralysis. Haedtke describes these episodes as “terrifying,” saying sometimes it feels like there’s a cinder block on her leg when she tries to move. And she’s had vision problems, too. It’s hoped the new medication will also slow down the progression to permanent physical disability caused by the disease.
Still, Haedtke worries not just about the disease, but about the financial threat it poses. All the prescription medications for MS are extremely expensive.
A recent study from Oregon State University and the Oregon Health and Sciences University finds that the cost for MS drugs averages $60,000 a year, compared to $8,000 to $11,000 a year in the 1990s. The price for some climbed by an average of 30 percent per year for two decades, according to the report in the journal Neurology.
Every time a new drug came onto the market, the price of all the drugs jumped, too, says Daniel Hartung, a pharmacist and associate professor who conducted the study along with Dr. Dennis Bourdette, Sharia Ahmed and Dr. Ruth Whitham.
“Despite more choices, prices just continue to rise, contrary to what you think would happen,” Hartung says.
The standard economic principle that more choices will drive down prices doesn’t always apply in the topsy-turvy world of drug economics, especially in the United States.
“We pay more, substantially more, than what is paid in Canada, Australia and the U.K., often two to three times more than what those countries are able to negotiate directly,” Hartung says.
Drug companies are acting much like a cartel such as OPEC, says Stephen Schondelmeyer, a pharmaceutical economist at the University of Minnesota. He says the companies must figure “if we all keep moving [our prices] up and nobody moves down, we can get away with raising the price, because if a person has multiple sclerosis, what other choice do they have?”
Last year, new drugs to treat hepatitis C at a cost of $80,000 or more also sparked an anxious discussion about high drug prices. At least those drugs cure the disease, and by so doing reduce future health-care costs. But that’s not true for multiple sclerosis drugs.
“When the price of a drug doubles, does the patient get twice as much outcome?” Schondelmeyer asks. “No, it’s the same drug.”
Expensive new drugs are becoming increasingly common, not just for neurological diseases but for cancer as well. The federal government’s Centers for Medicare and Medicaid Services estimates that drug costs in the U.S. will rise from $272 billion in 2013 to $406 billion at the end of this decade, driven in part by higher priced “specialty” drugs like the MS medications.
“Sometimes the drug companies talk about a death spiral down if they compete on prices,” Schondelmeyer says. “I think we’ve entered the period of the death spiral upward.”
The trade group Pharmaceutical Research and Manufacturers of America (PhRMA) disputes that. Lori Reilly, executive vice president for policy and research, says inflation for drugs has been about the same as medical inflation overall.
While new high-priced drugs are driving up expenses for some conditions, there are savings elsewhere, Reilly says, as consumers switch from brand-name drugs to generics.
Reilly also says the figures cited in the Neurology paper aren’t a true reflection of the price of drugs because they are list prices. “When you’re only looking at the list price and you’re not looking at the significant rebates and discounts that go on,” she says. “It’s really not an apples-to-apples comparison.”
Insurance companies cut deals with the drug companies, so it’s hard to know what the manufacturers are actually charging. Reilly says the discounts can be 30 percent or more. Even then, they are still very expensive drugs.
Patients themselves don’t often pay the sticker price. In fact, for drugs with the extreme price tags, drug companies may also let them off the hook for copays that could easily run into the thousands of dollars.
Instead, the price of these high-cost drugs is typically shouldered by the other people who are in a patient’s health-insurance plan. The premiums go up for everyone. And for patients getting these drugs through government-sponsored health care plans, taxpayers pick up a lot of the tab.
The drug industry remains one of the most profitable businesses on the planet, but Reilly argues that the high prices are justified.
“The revenue that a company derives year in and year out is also paying for future research,” she says. “Obviously we know in the MS space that the medicines that exist on the market today don’t cure the disease. A lot of the companies that are currently in the MS space … are using that revenue to reinvest for future innovation. And that innovation is costly.”
Barbara Haedtke has heard that argument before, and she understands it. But still, “To have to think about costs continually going up so I can help fund the research — on the one hand I’m grateful, but on the other hand I’m upset.”
She’s also grateful to be in a drug-company program that lets her avoid what could be thousands of dollars in copayments for her medication. But that’s not guaranteed.
“It’s always a stress, because every year I also need to renew the copay program, and I don’t know if they’re going to continue to cover me.”
And she says that stress surely can’t be helpful as she tries to keep her MS under control.