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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Over the last few decades, the prices of prescription drugs in the United States have increased rapidly. Unlike most industrial countries, the US federal government lacks authority over drug pricing and consequently, prescription drug prices are solely determined by pharmaceutical companies, who justify their overly high prices with the substantial amounts of money that they allegedly spent on research and development of the drugs. However, in response, there is much dissatisfaction by American consumers and health insurers because the prices have already exceeded the affordability of many Americans. If the prices continue to increase at the same rate, most Americans would end up not being able to afford the medicine that they need.

Americans have been spending more on prescription drugs than the rest of the world in recent years. In 1999, the United States spent a total of $20.8 billion on prescription drugs and one year later, the amount escalated to $132 billion, which was an 18.8% increase from the previous year (Charatan). Furthermore, the spending on prescription drugs today is much higher. On the other hand, the United Kingdom spent only £7 billion, or approximately 10 billion in US dollars, on prescription drugs in 2000 (Charatan). In addition, in 1999, only 8.2% of the total national health spending was from prescription drugs but it rose to 11% in 2003 and eventually 14% in 2010 (Basu). Prescription drugs continue to be one of the fast growing components of the national healthcare spending (Basu). Many factors contributed to this increase in spending on prescription drugs in the US, but the three main factors involved in this were the greater number of prescriptions written by doctors, the tendency of people to use more expensive drugs, and the price increases for research and development of drugs (Charatan). One of the reasons for the sudden increase in the number of prescriptions was the addition of Medicare Part D, which assisted the elderly and disabled with costs of prescription drugs and prescription drug insurance premiums (Catlin).  

The cost of research and development of pharmaceuticals is a very controversial topic. Many Americans feel that the prescription drugs prices in the US are unreasonably expensive. In response to the public's reaction, several pharmaceutical companies noted that the process of developing and manufacturing an innovative drug require substantial amounts of capital, human resources as well as technology expertise (Dickson and Gagnon). According to Basu, in 2008, the average cost for pharmaceutical companies to develop a new drug and successfully bring it into the market is approximately $2 billion and they are spending more money on research and development each year. Also, the profits that they gain from current drugs are used for further research of new drugs. They also noted that the increasingly strict regulatory requirements and restrictions put in place by pricing and reimbursement authorities and managed-care organizations are causing them to spend more money to develop a new drug in order to meet those standards (Dickson and Gagnon). However, these strict regulations are necessary to be enforced to ensure the quality of the drugs. The remarkable improvement in medicine today compared to those from 30 years ago is evidence that the emplacement of regulations improved the production and innovation of pharmaceuticals. According to Dickson and Gagnon, long-established drug classes were greatly improved and many new classes of drugs are continuing to emerge.

Many countries have a formal process for new pharmaceuticals to receive approval and enter the market. However, the approval process conducted by the Food and Drug Administration (FDA) of the United States is extremely complex and time-consuming. Since the first Prescription Drug User Free Act (PDUFA) was passed in 1992, the FDA process has been becoming faster but the average time that it takes from the synthesis of a new drug to the approval of a New Drug Application (NDA) is about nine to twelve years (Dickson and Gagnon). It can even take up to twenty years and unfortunately, the length of this process has increased due to stricter regulations (Dickson and Gagnon). As a result, even though the amount of time required for the FDA review has been reduced, the total time for developing a new drug is continuously increasing over the years. Furthermore, the lengthy process creates an economic risk for pharmaceutical companies because another company is more likely to introduce a new drug first (Dickson and Gagnon). This reduces the possibility for a return on the investment made on the research and development of the drug and consequently, increase the likelihood of the company to raise the price of the drug (Dickson and Gagnon).

Although there is no immediate solution to the rapid increase of prescription drug prices in the United States, the federal government can provide a more affordable option to consumers by easing the approval process for biosimilars, which are considerably cheaper than brand-name drugs. Generic drugs is another less expensive category of medicine and the approval process for generic drugs was already shortened by the Hatch-Waxman Act in 1984 (Gottlieb). However, the approval process for biosimilars remains to be very complicated and time-consuming.

Brand-name drugs are commonly thought to be better than generic drugs and biosimilars because many people correlate lower prices with lower quality. However, generic and brand-name drugs have the same effectiveness because the active ingredients, dosage, risks, and safety are all identical. Generic drugs are sold at lower prices because the research, development, and marketing of the drugs have already been done by the company that created the drug. When a company's patent, which gives them the exclusive right to sell the drug, approaches expiration, other pharmaceutical companies can request approval from the FDA to manufacture and sell generic versions of the drug. When competition occurs, the prices are driven down even further. On the other hand, biosimilars are slightly different from generics in that they are not identical to the brand-name drugs. They have different active ingredients but they are highly similar to the brand-name drugs. A pharmaceutical company can propose to the FDA a biosimilar that has no meaningful differences in terms of safety, purity, and potency after extensive research on the original drug (“Biosimilar and Interchangeable Products”).

The Hatch-Waxman Act passed in 1984 shortened the FDA approval process for generic drugs and the number of generics in the market has drastically increased over the years. The act allowed generic products to receive approval by the FDA through an Abbreviated New Drug Application (ANDA) (Gottlieb). The process still requires manufacturers to demonstrate bioequivalence to brand-name drugs to ensure that the active ingredients and medicinal effects are identical to brand-name drugs (Gottlieb). Since generic products are medicinally identical and substantially cheaper, doctors tend to prescribe generic drugs over brand-name drugs to patients (Gottlieb). In 1984, the year the Hatch-Waxman Act was passed, only 18.6% of all the prescriptions in the United States were written for generic drugs but in 2007, it has increased to 63% (Frank). Consumers save tens of billions of dollars per year by purchasing generic products (Frank).

The Hatch-Waxman Act is a good example of how the government can control the market of pharmaceuticals to offer consumers a more affordable option while protecting the pharmaceutical companies. If the FDA approval process for biosimilars can be shortened like for the generic products, it would further increase the consumers' accessibility to prescription drugs. The current FDA process for biosimilars is much more complicated than the process for brand-name and generic drugs because of safety implications. Even though biosimilars are highly similar to their brand-name counterparts, they contain different active ingredients, dosage, risks, and safety because the biosimilar manufacturers lacks access to the manufacturing process of the brand-name drugs (Mellstedt et al). Also, due to the complexity of biosimilars, batches produced from the same manufacturing process can have minor differences (Schellekens). Currently, the FDA has no analytical techniques that can determine the biopharmaceutical equivalence between biosimilars and their brand-name counterparts and therapeutical equivalence can only be establish through clinical trials as of now (Schellekens). Therefore, the development and approval of biosimilars are very complex.

Despite the possibility of safety implications, biosimilars can offer much lower costs to consumers and manufacturers than brand-name drugs. It is crucial to increase the consumers' access to less expensive pharmaceuticals so that they can afford the medicine that they need. While receiving the medicine that they need, they are also able to save substantial amounts of money on the prescription drugs. Furthermore, biosimilar manufacturers will be able to increase their profits and the costs savings can stimulate further innovative research. The price competition will also be able to control brand-name companies by discouraging them from introducing overly high prices for their new products, while still exceeding the marginal costs of production. The success of generic drugs in today's market indicates that introducing more less expensive pharmaceuticals can produce a positive effect in our economy.

Another approach that the federal government can take to subdue the problem of rising prescription drug prices in the United States is to increase the importation of foreign prescription drugs from countries such as the United Kingdom and Canada. By increasing the number of foreign prescription drugs in the US market, consumers hope that they will create competition with the pharmaceutical companies in the United States (Brodwin). Competition will most likely put restraints on the increase of drug prices because foreign prescription drugs are much less expensive (Brodwin). This was, in fact, one of the reactions that Americans had in response to the price increases (Hamilton). When prescription drug prices became too high, several states and local governments planned to import prescription drugs from Canada for their employee health plans (Hamilton). However, the wholesale importation of foreign pharmaceuticals is banned in the US (Hamilton). Only individuals are able to purchase and import products from Canadian pharmacies (Hamiliton). In addition, the lower prices of prescription drugs in Canada are mainly due to their single payer system, which has the authority to set prices (Pecorino). Unfortunately, the US government lacks the authority over setting prices and consequently, pharmaceutical companies are able to set prices for their products without any strict regulations. Furthermore, there has been many attempts to change the current health system in the US to a single payer system but they were all unsuccessful.

However, the importation of foreign prescription drugs has attracted strong opposition from pharmaceutical companies in the United States and even considerable opposition from the federal government. Firstly, most countries already import US-made pharmaceuticals. Therefore, if American consumers import foreign pharmaceuticals into the country, it is very likely that it would be made in the US. Reimportation would hurt the pharmaceutical companies in the US. Secondly, many have doubts about the safety and quality of the prescription drugs produced by foreign manufacturers. Some argue that this can be resolved by allowing only imports from proven manufacturers in countries that have strong inspection programs but the Food and Drug Administration is also concerned about the consequences of foreign importation since it would require a significant amount of resources to monitor the safety of the foreign products (Hamilton). Thirdly, the reduced profitability of pharmaceutical companies in the US from competition with foreign manufacturers may hinder the development of new pharmaceuticals (Hamilton).

From the two solutions mentioned, the simplification of the FDA process for biosimilars is a better option for the consumers, pharmaceutical companies, and the federal government. Since biosimilars are sold at substantially lower prices than brand-name drugs, many consumers will be able to afford the medicine that they need as well as save large amounts of money that would have been spent on the medicine. In addition, the shortening of the FDA process will greatly benefit the pharmaceutical companies invested in biosimilars because introducing new products into the market faster will lead to larger profits by reducing the expenditures on the research and development of the products. These incentives will most likely stimulate further innovative research. Lastly, if the FDA develops a new, organized, and much more simplified process for the approval of biosimilars, the federal government will also be able to reduce expenditures and it will set a precedent for future processes.

As a result of the federal government's lack of control over setting prices, the prescription drug prices in the United States are solely set by pharmaceutical companies themselves and they have been continuously on the rise due to the increasing costs of research and development of new pharmaceuticals. The price increases have cause much dissatisfaction in consumers as the affordability of the prescription drugs decreases drastically. In order to increase the consumers' accessibility to prescription drugs, introducing more biosimilars, which are new, non-innovative products that are very similar to brand-name drugs, into the market by simplifying the Food and Drug Administration process is a better solution than increasing the importation of foreign prescription drugs.

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