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Healthcare expenditures comprise a considerable share of the United States (U.S.) economy, accounting for 17,2 % of its Growth Domestic Product (GDP) in 2016 at USD 3,2 trillion (OECD, 2017b). In the same year, spending on prescription medicines, which are those covered by health insurance and dispensed by pharmacies, doctors’ offices, hospitals, and other medical facilities, approached USD 450 billion (IQVIA, 2017). Recent years have seen ever-increasing drug prices, both among newly launched innovative therapies and older existing products. In 2014, the entry of expensive new treatments for Hepatitis C drove retail prescription drug expenditures up by 12,2 %, setting the bar for a period of sustained growth in drug spending overall (Martin et al., 2016; Keehan et al., 2016). Forecasts project that prescription drug spending will grow at an average pace of 6,3 % per year through 2026, the fastest growth rate among healthcare goods and services (Cuckler et al., 2018).
Globally, pharmaceutical expenditures are on track to reach USD 1,5 trillion in 2021, a trajectory pushed by annual growth of 6,2 % between 2011 and 2016 (QuintilesIMS Institute, 2016). At an annual 6,9 % growth rate, the U.S. is by no means an exception. It also shares with other Organisation for Economic Co-operation and Development (OECD) countries the demographic trends and population health patterns that have driven significant increases in prescription drug use, a major driver of spending growth (Waxma…


Healthcare expenditures comprise over 17 % of the United States Growth Domestic Product, with a considerable and growing share attributable to pharmaceutical products. High and increasing prices, particularly those commanded by branded drugs, are a major driver of this growth and pose challenges to patients’ ability to afford or gain access to treatment. Reforms have been set forth in response to public outcry over these concerns; the proposed changes have in turn raised questions about potential implications for future innovation. To critically evaluate the potential effect of a policy change on the balance between affordability, access, and rewards for innovation in the United States requires an understanding of its current system of purchasing and reimbursement for drugs. This article examines the relationships and transactions across the pharmaceutical supply chain that shape the market, a number of which can place inflationary pressure on prices. It goes on to review the state of innovation under these conditions, and considers the potential of payment reform and other policy proposals to address pricing concerns among branded drugs.

Anna Kaltenboeck
Health economist and program director for the DrugPricingLab at Memorial Sloan Kettering Cancer Center. Her work focuses on value-based pricing and policies to foster rational and sustainable drug pricing in the United.
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