What Controls Prescription Drug Costs
Aging Matters

In a recent survey by Pew Research, close to 8 in 10 Americans believe that prescription drug prices are unreasonable, and many would support legislation to lower them. But what determines the cost of prescription drugs in the first place, and how much do Americans really pay for these medications? Here's what Pew found.

In 2016, Americans spent $3 Trillion on personal health care, and $477 billion on retail prescription drugs in 2016. The pay out accounts for 17 percent of total personal health expenditures like patient's health care, physician services, prescription, and more.

A Kaiser Health Tracking Poll discovered widespread support for several actions to keep costs down including requiring drug companies to release information to the public on how they set their drug prices, allowing the federal government to negotiate with drug companies to get a lower price on medications for people on Medicare, limiting the amount drug companies can charge for high-cost drugs, allowing Americans to buy prescription drugs imported from Canada, and creating an independent group that oversees the pricing of prescription drugs.

The latest Pew study found a drug company can raise prices as much as it choose each year and face no federal restrictions in setting a new list price. Overall, here's what drives the cost of prescription medications.

  • New named drugs on the market for less than two years are the largest contributors to spending growth. These are specialty products derived from living cells, which account for 33% of drug costs but less than 2% of prescriptions. (Used for cancer and autoimmune diseases.)
  • Increases in the prices of brand drugs with no generic competitors also contribute to the rise of spending.
  • Americans are using more prescription drugs. In 2016, 4.5 million prescriptions were dispensed in the U.S., a 7 percent increase since 2011 (with about half taking at least one drug.) Americans over 50 use more prescription drugs which accounts for 35% of the population but 70% of all dispensed prescriptions.

However, drug spending is a complex issue that involves a range of products, policies, and stakeholders across the health care system.

In 2017, the average out-of-pocket spending on prescription drugs was $137 across all ages an insurance types. It's expected to rise to $190 by 2026. This is an average, and what patients pay varies by health plan.

A 2016 Kaiser Family Foundation poll found that 44% of respondents worried about affording the cost of their prescriptions.

Out-of-pocket costs are a challenge for Medicare beneficiaries. In 2015, patients reaching the catastrophic coverage phase of Medicare's drug benefit paid an average of $257/month.

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Carol Marak, aging advocate and editor at Seniorcare.com. She's earned a Certificate in the Fundamentals of Gerontology from UC Davis, School of Gerontology.

Part of the Aging Matters Weekly Syndicated Column

Aging Matters is a weekly column tackling everyday challenges that our growing elderly population and their loved ones face. It is also published in a variety of syndication partners including newspapers all over the country.

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