$722 billion and rising.
That’s how much Americans and their insurance companies spent last year on prescription drugs — and according to one estimate, that figure is likely to continue to climb by at least 10 percent in 2024. The reasons are complicated, experts say, but they include more prescriptions for more patients and high prices for new medications that have entered the market.
It is that latter factor — the price manufacturers charge for their drugs — that most worries Rachel Sachs ’13, the Howard J. and Katherine W. Aibel Visiting Professor of Law at Harvard and an expert in health law and innovation.
“We know that too many patients, even patients with good health insurance, have difficulty affording their medications,” says Sachs, pointing to a recent survey that showed that more than one quarter of Americans had trouble paying for their prescriptions.
And increased drug costs not only burden individual patients — especially senior citizens — they also strain federal health insurance programs like Medicare and Medicaid, which rely on tax dollars to operate, Sachs adds. “Our public payers have much less ability to get lower prices on a lot of these new medications because of the structure of the programs,” allowing prices to skyrocket over time, she says.
Sachs is a professor of law at Washington University in St. Louis and served as a senior advisor at the Department of Health and Human Services Office of the General Counsel, working on Inflation Reduction Act implementation, from April 2023 to April 2024.
In October, she testified before the U.S. Senate Committee on the Judiciary about how health law, patent law, and a lack of competition contribute to the rise in prescription drug prices. In an interview with Harvard Law Today, she explains the meteoric rise in drug prices, why it’s a big problem for everyone, and how lawmakers could ensure that all Americans can afford their medications — while saving taxpayers money.
Harvard Law Today: Why is it important to address drug prices?
Rachel Sachs: The problem of high drug prices affects different stakeholders in different ways. For example, we know that too many patients, even patients with good health insurance, have difficulty affording their medications. One recent study found that 30% of Medicare beneficiaries didn’t fill a new prescription for a cancer medication — that’s not an optional drug. Another study shows that about one quarter of adults report difficulty filling their prescriptions, and we see them take steps like cutting pills in half or skipping doses because of the cost. Those things can have real health harms for patients.
But we also care not just about patients, but about the system as a whole. What are we spending as a country? What are our public payers spending on medications? Because we all pay for that in terms of our health insurance premiums and also in terms of our taxes. We’ve seen steep increases in Medicare spending on prescription drugs, and those increases seem to be driven not just by increased utilization — more people taking more drugs — but also by increases in the prices of those drugs.
HLT: Have drug prices been increasing significantly over time? If so, why?
Sachs: They are certainly going up over time. One recent study found that median launch prices of new drugs increased from just over $2,000 per year in 2008 to $180,000 per year in 2021. Now, that increase is driven in part by a change in the types of new drugs that are being approved. We’re not talking about the approval of a new statin for the treatment of high cholesterol. We’re talking about complex biological products that treat cancer or autoimmune conditions like arthritis. And our public payers like Medicare have much less ability to get lower prices on a lot of these new medications because of the structure of the programs, and that allows their launch prices to rise much more quickly over time.
HLT: One point you made in your Senate testimony is that patent law is playing a role in accelerating drug prices. How?
Sachs: Patent law allows drug manufacturers to exclude others from making their products for some period of time. There’s concern, some of which is bipartisan, that pharmaceutical companies are using the patent system to delay competition from lower priced products beyond what might be appropriate. Think about Humira [an immunosuppressant drug used to treat many conditions such as arthritis and Crohn’s disease], which was one of the best-selling drugs in the world. The manufacturer of Humira was able to prevent lower cost competitors from entering the market for 20 years after it was first approved, and its manufacturer was able to obtain 136 patents covering Humira and use them to extend its monopoly.
HLT: What power do public payers like Medicare and Medicaid have to negotiate with drug manufacturers like private insurance companies do?
Sachs: Until recently, Medicare’s ability to obtain lower prices for drugs was really limited. Economists referred to one part of Medicare as a price taker. They argued that drug companies, with little competition, were basically able to set their own Medicare payment rate because of the structure of that part of the program. Another part of Medicare was prohibited by statute from negotiating for the prices of prescription drugs. Brand name drug prices in the U.S. are more than four times higher than the prices in other peer countries. Yet those countries also have patents. Maybe they have slightly fewer of them, as we talk about some of the secondary patents on these drugs, but they do have patents. It’s just that they allow their public payers and their insurance regulators to negotiate for the prices of drugs, and they’re able to get much lower prices than we do.
HLT: So, how can lawmakers address these two issues?
Sachs: There’s no one right way, but there are a lot of different options that would all work. It’s very helpful to think about designing policy solutions to benefit patients, to benefit the system as a whole, that work within our system, that work to support the values of the American healthcare system, and that accomplish this goal at the same time.
The Inflation Reduction Act of 2022 fits this model well. It takes important steps to both increase financial protections for patients who have difficulty affording their prescription drugs, and also to protect the finances of Medicare in particular. For patients, it has a whole range of protections. It increases subsidies for low-income seniors to be able to afford their medications. For other seniors who maybe don’t qualify for those low-income subsidies, it caps their out-of-pocket costs, both generally and also for certain categories of products like insulin, or for vaccines more specifically. But it also allows Medicare to negotiate for the prices of drugs in a way that it had not previously been able to.
One interesting feature of the Inflation Reduction Act and the drug price negotiation program is that it’s very much part of our American tradition of using competition to lower prescription drug prices through generic drugs and now through biosimilar versions of these new complex biological products. The Inflation Reduction Act’s Medicare drug pricing program says we’re going to allow Medicare to negotiate for the prices of these drugs, but only once they’ve been on the market for some period of time, and only if at that point they still don’t have generic competition. I saw one article reflecting on the passage of this law which suggested that Humira was the inspiration for a lot of this — that the idea of discouraging competition for 20 years or more, and of allowing the manufacturer to charge Medicare whatever it wants, is not sustainable.
HLT: How can we increase competition in the drug market?
Sachs: The idea of encouraging competition in the drug market relies on using generics — or biosimilars — which are lower cost products competing with their branded reference drugs. Policymakers can make sure that these lower cost products are being approved by the Food and Drug Administration, and it’s here that patent law and FDA law can play a role. But we also need to make sure that those products are covered by insurers, that they’re prescribed by physicians, and that they’re substituted at the pharmacy counter. And it’s here that health law can play a larger role. Congress, federal regulators, state legislators, and even private actors can all take steps to promote competition in the prescription drug market using these different strategies.
HLT: Some people worry that, by reducing the price of drugs, we might discourage pharmaceutical companies from creating new ones. After all, it often takes many years and a lot of money upfront to bring novel drugs to the market. What do you make of that argument?
Sachs: You often hear this argument, especially from the pharmaceutical industry, anytime there’s a bill that would have the effect of lowering drug prices. I remember the trade group PhRMA argued that a 2019 drug price negotiation bill would result in “nuclear winter” for innovation. But in my view, one important aspect of this discussion that’s often overlooked is that we should care not just about how much innovation we’re getting, but about how good it is for patients. We don’t just want a new drug. We want a new drug that delivers some sort of clinical benefit for patients. Maybe it has a novel mechanism of action, maybe it meets an unmet medical need.
“One important aspect of this discussion that’s often overlooked is that we should care not just about how much innovation we’re getting, but about how good it is for patients.”
If you think about the Medicare drug price negotiation provisions of the Inflation Reduction Act, they’re trying to negotiate lower prices for drugs and to benefit patients as well as the Medicare program, but in doing so, the law is structured in a way to preserve innovation. Congress specifically instructed Medicare to consider whether the drug is a therapeutic advance over existing alternatives, what the drug’s comparative effectiveness is relative to others, and whether the drug addresses unmet medical needs. A drug that delivers this additional clinical value for patients will command a higher price, at least as interpreted by Medicare, relative to a drug that doesn’t provide such additional clinical value. The structure of the negotiation program should maintain strong incentives for manufacturers not just to invest in the development of new drugs, but new drugs that represent clinical improvements for patients.
HLT: In your opinion, are we too dependent on private entities for the development of new medications?
Sachs: I don’t have a strong view on that. However, one real area where governmental funding is really critical is in basic research. It’s important to have funding of basic research that allows for the development of information that then can be used by lots of different actors, both public and private, in the development of therapies. For example, Alzheimer’s is a disease with a lot of very devastating health impacts on seniors, but we’re still really struggling to understand the biological basis for the disease, exactly what’s going wrong, and what are the best ways to address it in patients. That type of research is very important to have public funding for so that the information can be made available more generally, and people can then use it to help develop these drugs.
HLT: Are there any policies proposed by the Trump administration that could help or hurt the effort to reduce drug costs?
Sachs: The incoming administration has not offered any specific ideas about what it would like to do on prescription drug costs. A number of Republicans in Congress would like to repeal the Inflation Reduction Act, including its program of Medicare drug price negotiation, and that would have the effect of increasing costs for seniors on Medicare and for taxpayers. Those members of Congress have not yet proposed any offsetting approach which would lower costs. More generally, a lot of health law scholars are expecting the Trump administration and Republicans in Congress to try to weaken or even repeal the Affordable Care Act, and that would result in large numbers of Americans losing their health insurance or losing specific health care protections that the ACA provides, including the requirement that insurers provide coverage to patients with preexisting conditions. A health insurance focused push like that would have the effect of making it more difficult for people to afford their medications.
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