The high cost of prescription drugs in the United States came under scrutiny in a new report from the National Academies of Sciences, Engineering, and Medicines, “Making Medicines Affordable: A National Imperative,” co-authored by Stanford Law Professor Michelle Mello (former Senator Jeff Bingaman, JD ’68, co-chaired the committee). Published on November 30, the report aims to increase both affordability and accessibility to crucial—often lifesaving—drugs for Americans, with recommendations such as better government negotiated prices, quicker turnaround for generic drugs, and increased financial transparency for biopharmaceutical companies. In the discussion that follows, Mello explains some of the key challenges facing Americans in need of prescription drugs and key recommendations in the report.

You note in the report that Americans are paying significantly more for their healthcare but are significantly less healthy when compared to developed countries. Do we also pay more for prescription drugs?

Yes.  In fact, many countries use “reference pricing” schemes, through which the price that their national health programs pay for prescription drugs is actually calculated as a percentage of what we pay!  One of the ethical issues that weighed on the Committee as we deliberated was that interventions that tamp down prices in the U.S. could have ripple effects in other, less wealthy countries if drug makers seek to recoup their losses by giving fewer price concessions elsewhere.

What is the most important factor leading to higher prescription drug costs in the U.S.?

The old adage that “every system is perfectly designed to get the result it gets” really came to mind as we investigated why drugs cost so much.  It’s not just one factor, but a whole ecosystem in which multiple actors and factors are contributing.  At the root of it, though, is that there are distortions in the market for drugs that permit things to happen that wouldn’t occur in a truly competitive market.