Medication costs
Medication costs, also known as drug costs are a common health care cost for many people and health care systems. Prescription costs are the costs to the end consumer. Medication costs are influenced by multiple factors such as patents, stakeholder influence, and marketing expenses. A number of countries including Canada, parts of Europe, and Brazil use external reference pricing as a means to compare drug prices and to determine a base price for a particular medication. Other countries use pharmacoeconomics, which looks at the cost/benefit of a product in terms of quality of life, alternative treatments, and cost reduction or avoidance in other parts of the health care system. Structures like the UK's National Institute for Health and Clinical Excellence and to a lesser extent Canada's Common Drug Review evaluate products in this way.
Medication costs can be listed in a number of ways including cost per defined daily dose, cost per specific period of time, cost per prescribed daily dose, and cost proportional to gross national product.
A November 2020 study found that more than 1.1 million senior citizens in the U.S. Medicare program are expected to die prematurely over the next decade because they will be unable to afford their prescription medications, requiring an additional $17.7 billion to be spent annually on avoidable medical costs due to health complications.
Definition
Medication costs can be the selling price from the manufacturer, that price together with shipping, the wholesale price, the retail price, and the dispensed price.The dispensed price or prescription cost is defined as a cost which the patient has to pay to get medicines or treatments which are written as directions on prescription by a prescribers. The cost is generally influenced by a financial relationship between pharmaceutical manufacturers, wholesale distributors and pharmacies. In addition to the financial relationship, each nation has different systems to control the cost of prescriptions. In the United States, a pharmacy benefit manager, a third-party organization, such as private insurances or government-run health insurances will implement cost containment programs, such as establishing a formulary, to contain the cost. In the United Kingdom, the government negotiates an overall cap on drugs bill growth with the pharmaceutical industry. In addition a government agency, the National Institute of Health and Care Excellence assesses cost effectiveness of individual prescription drugs pricing. The National Health Service also may negotiate direct with individual pharmaceutical companies for certain specialised medicines, as well as running competitive procurements for generic drugs and for patented medicines where there is more than one drug available for a condition. Prescription costs are a regular health care cost for the sick and may mean economic hardship for the underprivileged.
With healthcare insurance, the patient in the U.S. pays a co-pay, a deductible and co-insurance for prescription costs. After reaching the out of pocket maximum, the insurance company will pay 100% of the prescription cost. The amount the patient has to pay depends on the healthcare insurance plan the patient has.
As of 2017, prescription costs range from just more than 15% in high income countries to 25% in lower-middle income countries and low income countries.
Factors
Pricing any pharmaceutical drug for sale to the general public is daunting. Per Forbes, setting a high ceiling price for a new drug could be problematic as physicians could shy away from prescribing the drug, because the cost could be too great for the benefit. Setting too low of a price could imply inferiority, that the drug is too "weak" for the market. There are many different pricing strategies and factors that go into the research and evaluation of a future drug's price with whole departments within US pharmaceutical companies like Pfizer devoted to cost analysis.This chart shows discrepancies in drug pricing in different countries.
Marketing expenses
A study has placed the amount spent on drug marketing at 2-19 times that on drug research.Research and development
Much research, needed to create drugs is done by the public sector. In addition, pharmaceutical companies also do much research prior to producing medications. The table shows research and development statistics for pharmaceutical companies as of 2013 per Astra Zeneca.| Pharmaceutical company | Number of drugs approved | Average R&D spending per drug | Total R&D spending from 1997 to 2011 |
| AstraZeneca | 5 | $11,790.93 | $58,955 |
| GlaxoSmithKline | 10 | $8,170.81 | $81,708 |
| Sanofi | 8 | $7,909.26 | $63,274 |
| Roche Holding | 11 | $7,803.77 | $85,841 |
| Pfizer | 14 | $7,727.03 | $108,178 |
| Johnson & Johnson | 15 | $5,885.65 | $88,285 |
| Eli Lilly & Co. | 11 | $4,577.04 | $50,347 |
| Abbott Laboratories | 8 | $4,496.21 | $35,970 |
| Merck & Co Inc. | 16 | $4,209.99 | $67,360 |
| Bristol-Meyers Squibb Co. | 11 | $4,152.26 | $45,675 |
| Novartis | 21 | $3,983.13 | $83,646 |
| Amgen Inc. | 9 | $3,692.14 | $33,229 |
Severin Schwan, the CEO of the Swiss company Roche, reported in 2012 that Roche's research and development costs in 2014 amounted to $8.4 billion, a quarter of the entire National Institutes of Health budget. Given the profit-driven nature of pharmaceutical companies and their research and development expenses, companies use their research and development expenses as a starting point to determine appropriate yet profitable prices.
Pharmaceutical companies spend a large amount on research and development before a drug is released to the market and costs can be further divided into three major fields: the discovery into the drug's specific medical field, clinical trials, and failed drugs.
Discovery
The process of drug discovery can involve scientists determining the antibodies, viruses, or bacteria that cause a specific disease or illness. The time frame can range from 3–20 years and costs can range between several million to tens of millions of dollars. Research teams attempt to break down disease components to find abnormal events/processes taking place in the body. Only then do scientists work on developing chemical compounds to treat these abnormalities with the aid of computer models.After "discovery" and a creation of a chemical compound, pharmaceutical companies move forward with the Investigational New Drug Application from the FDA. After the investigation into the drug and given approval, pharmaceutical companies can move into pre-clinical trials and clinical trials.
Trials
and pre-clinical trials focus on non-human subjects and work on animals such as rats.The Food and Drug Administration requires at least 3 phases of clinical trials that assess the side effects and the effectiveness of the drug. An analysis of trial costs of approved drugs by the FDA from 2015 to 2016 found that out of 138 clinical trials, 59 new therapeutic agents were approved by the FDA. These trials have a median estimated cost of $19 million US dollars.
- Phase 1 lasts several months and aims to assess the safety and dosage of the drug. The purpose is to determine how the drug affects the body.
- Phase 2 lasts several months to two years and aims to assess the efficacy and side effect profile of the drug.
- Phase 3 lasts 1 to 4 years and aims to continue assessing and monitoring the efficacy and side effects of the drug. Phase 3 aims to determine the risks and benefits of a drug to its intended patient population.
- Phase 4 trials occur after the drug is approved by the FDA and aims to continue monitoring safety and efficacy of the drug.
Failed drugs
The processes of "discovery" and clinical trials amounts to approximately 12 years from research lab to the patient, in which about 10% of all drugs that start pre-clinical trials ever make it to actual human testing. Each pharmaceutical company will never recuperate the costs of "failed drugs". Thus, profits made from one drug need to cover the costs of previous "failed drugs". The cost of failure in R&D constitutes about 60% of all development costs. It emphasizes the importance of success rates as a key driver of R&D productivity. The average costs for studies are estimated at $30 million, $70 million, and $310 million for Phase I, II, and III, respectively.Relationship
Overall, research and development expenses relating to a pharmaceutical drug amount to the billions. For example, it was reported that AstraZeneca spent upwards on average of $11 billion per drug for research and developmental purposes. The average of $11 billion only comprises the "discovery" costs, pre-clinical and clinical trial costs, and other expenses. With the addition of "failed drug" costs, the $11 billion easily amounts to over $20 billion in expenses. Therefore, an appropriate figure like $60 billion would be approximate sales figure that a pharmaceutical company like AstraZeneca would aim to generate to cover these costs and make a profit at the same time.Total research and development costs provide pharmaceutical companies a ballpark estimation of total expenses. This is important in setting projected profit goals for a particular drug and thus, is one of the most necessary steps pharmaceutical companies take in pricing a particular drug.
A 2022 study invalidated the common argument for high medication costs that research and development investments are reflected in and necessitate the treatment costs, finding no correlation for investments in drugs and their costs.