Many modern drugs are lifesavers. With their help, countless Americans are now living longer and better. Remarkably, new drugs can even allow some people with otherwise lethal cancers to survive for years

But make no mistake. Pharmaceutical breakthroughs come at a price—and it’s a high one. Headlines regularly announce stratospheric costs such as a hemophilia drug with a tab of $1.5 million. Everyday drugs are also taking an ever-heftier chunk of the average paycheck. 

What’s driving these runaway drug costs? For the real story, Bottom Line Health spoke with Robin Feldman, JD, a renowned legal scholar who specializes in pharmacy and patent law. 

Have drug prices really gone up as much as people think? Yes! Even after accounting for rebates, Medicare spending for brand-name drugs rose 62% between 2011 and 2015. And while the cost of new drugs and those for rare conditions contributes to the sticker shock, drug companies have raised prices most sharply for commonly­­ used drugs such as those prescribed for chronic conditions, including diabetes, elevated cholesterol, high blood pressure, asthma and the like. 

But doesn’t health insurance generally pick up the tab? Not everyone has health insurance, and not all insurance covers drugs. Many people who are insured through their jobs pay a deductible before drug coverage kicks in. Many Medicare participants pay coinsurance—a proportion of the drug cost—and then there’s the “donut hole,” a gap in coverage when the insured pays a percentage of the cost (25% of the list price for brand-name drugs and 37% for generic drugs) up to $5,100 out-of-pocket for 2019. Though many people assume that it’s the insurance companies that are swallowing these higher drug prices, the fact is, health insurers pass them on in higher premiums. 

Sadly, the human cost can be extraordinarily high when people are forced to choose between medication and other basic bills like food and heating…or they halve the dose or only take their meds on alternating days. 

What about the pharmaceutical companies’ contention that they need high prices to finance the development of lifesaving drugs? Research and development (R&D) is indeed expensive, and a pharmaceutical company that makes an important discovery should get a handsome reward. But the billion-dollar R&D costs that drug manufacturers commonly cite are “one of the great myths of the industry,” according to Andrew Witty, former CEO of GlaxoSmithKline, one of the biggest pharmaceutical companies.

Patent protection allows the company to sell the product it developed without competition for a decade or more. But companies constantly play the system, extending patents by slightly tweaking a drug with “me-too” drugs…adding new dosages…putting it in a pill instead of a capsule…or repurposing it for a new disease.

When patents do expire, companies may find it worth their while to pay generic manufacturers to actually keep cheaper versions off the market. But the real reason for ever-rising drug costs has to do with how they’re sold. 

How so—isn’t it a free market? It’s complicated. Few people realize that private and government health plans don’t deal directly with drug companies. These insurers hire middlemen, known as “pharmacy benefit managers” (PBMs), to help choose what drugs they’ll cover, negotiate prices and set consumer costs, such as co-pays and coinsurance. PBMs initially operated mainly as claims processors, but when Medicare added drug coverage in 2006, their roles expanded so that they now help establish formularies (the lists of drugs that insurers cover) and are the ones to negotiate drug costs directly with the pharmaceutical companies. 

This is where it gets tricky. PBMs should be bargaining with the drug companies to get the best deals, but pharmaceutical companies usually put a high price on their drugs and then offer discounts or rebates to the PBM. (It’s like Macy’s jacking up the “list price” for a suit and then lowering it by 60% for a doorbuster sale.) 

To sweeten the pot further, manufacturers offer volume discounts to PBMs whose health-plan clients buy more of their drugs. In return, the PBM gives preferential treatment to the company’s drug by denying coverage for a competitor’s products or tacking a higher co-pay on them. This is why you may be asked to pay more for a generic medication than for the brand-name drug. Or why cheaper drugs aren’t covered by your insurance.

The trouble is, the rebate or discount may go to the PBM, but no further. The insurer—and you—pay the rising list price. The shocking part is that the deals struck between PBMs and drug companies are considered “trade secrets”—they are hidden from the consumer, the insurer, the employer and even the government.

Is this why drugs are so much cheaper­ elsewhere? It’s true that the systems in other countries are quite different from those in the US. To an extent, we subsidize the pharmaceutical manufacturers’ profits—drug companies know they can cut prices in Europe and Canada and make it up in the free-for-all American market. This is why you pay $200 for a prescription that your cousin in Toronto fills for $10. 

Short of moving to Canada, what can we do to keep our drug costs down? First, be an intelligent consumer. If you’re paying out of pocket, shop around for lower prices. For example, on the website GoodRx.com, you can compare costs at local pharmacies. The website also offers coupons to reduce the purchase price for certain drugs. ­In addition…

  • Don’t assume that health insurance will reduce your cost. If a drug covered by your policy carries a hefty co-pay, it’s sometimes cheaper to buy it yourself. 
  • Ask your doctor if there’s a ­generic­ or less costly alternative with the same therapeutic effect. And don’t be fooled by advertising. Manufacturers of brand-name drugs advertise, but companies don’t do the same for their generic medications.
  • If you’re prescribed a combination drug, price its components separately. For example, Treximet, a brand-name migraine drug, costs just over $900 for nine tablets (a typical 30-day supply). It’s a combination of the drug sumatriptan, an older, off-patent medication now available as a generic, and naproxen, a generic pain reliever that’s available over the counter. Buying the drugs separately would cost about $36. Note: You may not be able to find the exact dosages that are in a combo drug by purchasing the drugs separately. Discuss with your doctor how to adjust the drugs if taking them separately to still meet your needs.
  • Review every medication that you take with your doctor, and make sure you still need them all. 
  • Talk to your doctor about nondrug therapies.
  • Buy a pill splitter ($5 to $10 at most drugstores). Many drugs cost the same regardless of dosage. If you’re prescribed a 5-mg daily dose of an expensive medication, ask your doctor to write a script for 10 mg—you’ll get a two-month supply for the price of one. Just be sure to ask your pharmacist if the pill can be split.
  • Consider using a pharmacy discount card. Organizations such as AARP and AAA offer these cards to members, but don’t forget to comparison shop to make sure the card is offering you the best price.