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Add to Drug Expenditures Section

In 2010, prescription drug expenses were 10% of the $2.6 trillion of total health care spending in the United States. It was the third largest portion of the health care budget, following hospital spending and physician and clinical services. In 2003, data from the Medical Expenditure Panel Survey showed that only 9.5% of Americans with Medicare coverage had no prescription drug expenses, while 61.6% had prescription drug expenses up to $2,083, and 28.9% of those on Medicare had expenses higher than $2,084. The study also found that families with low income tended to have higher prescription drug expenses during the year. 18.9% of poor households paid more than $4,724 compared to 13.2% and 12.5% who had prescription drug expenses between $2,084-$4,723 and $1-2,083, respectively.

Effects

In 2006, data from the Medical Expenditure Panel Survey was analyzed to determine the costs of healthcare for American households. It showed that 19.1% of Americans spent more than 10% of their income on healthcare related expenses. Those Americans were considered to have a financial burden due to their healthcare spending. The high cost of prescription drugs has forced many Americans to use cost-cutting measures and has also led to reformed healthcare legislation.

Prescriptions from other countries

The Washington Post wrote in 2003 that "U.S. Customs estimated 10 million U.S. citizens brought in medications at land borders each year. An additional 2 million packages of pharmaceuticals arrive annually by international mail from Thailand, India, South Africa and other points". Prescription drugs also entered the country in large quantities through Canada because of the price differential of prescription drugs in the two countries. In 2004, it was estimated that Americans purchased more than $1 billion in US dollars in brand-name drugs per year from Canadian pharmacies to save money.

Prescription non-compliance

Another common way that people saved money, was to skip or reduce dosages or fail to fill a prescription entirely due to cost restrictions. A quarter of Americans taking prescription drugs said in June 2015, they had not filled a prescription in the past 12 months due to cost, and 18 percent reported they "cut pills in half or skipped doses" according to a Kaiser Family Foundation survey. Similar studies, done ten years prior, found numbers very similar to the 2015 numbers from the Kasier Family Foundation survey. In 2007, it was estimated that 23.1% of Americans (51 million) had did not adhere to their prescription instructions due to the cost of prescription drugs. This is compared to only 8% of Canadians who skipped doses or failed to fill a prescription in the same year because of the cost of prescription medications. The number of Americans who reported cost-related non-adherence to their prescriptions was more than double the amount of Canadians. The factors that contributed to whether or not a person was more likely to not follow their prescribed medication instructions were age, the number of checkups with a physician, ongoing health problems, income, and insurance coverage. For example, adults between the ages of 18-35 were more likely to skip doses or fail to fill a prescription than those 75 years of age or older. Those with fewer visits to a physician and those with chronic illnesses or disabilities were also more likely to report noncompliance. The reason for those with ongoing illness or disabilities to skip doses is likely due to the increased complexity and the higher prices of the drugs needed. Income and insurance coverage were also major factors determining whether or not a patient would take their medication in the correct doses for the correct duration of time. Those who lacked insurance coverage or were in low-income brackets had very high rates of non-compliance with their medication, even though the United States has drug coverage policies for those with low incomes. Those whose healthcare spending is more than 10% of their income and causes a financial burden to the patient, are considered uninsured, whether they actually have health insurance or not.

Affordable Care Act

In 2010, the Patient Protection and Affordable Care Act, commonly known as Obamacare or the Affordable Care Act, was created. The goal was to increase the number of people who had healthcare in the United States and reduce the impact that individual healthcare spending had on households, especially since many Americans had lost their health insurance coverage in the Great Recession. While the Affordable Care Act has many provisions which will help achieve its goals, there are two in particular that aim to reduce the burden of prescription drugs on American households. Both relate to the Medicare Part D coverage gap. Under current Medicare coverage, people pay the deductible until they reach the limit of $3,310. They then enter the coverage gap where they pay approximately half the total cost for the drug. Once the yearly out-of-pocket expenses reach $4,850, the catastrophic coverage phase begins and the patient only pays a very small amount for continued medication. The first provision in the Affordable Care Act that aims to reduce the prices for prescription drugs was enacted immediately in 2010. It provided a one year, $250 rebate to those patients in the coverage gap to help pay for their medication. The second provision was enacted in January of 2011 and created a 50% discount on brand-name prescription drugs for seniors within the coverage gap. Subsidies will continue to be provided until 2020 when the coverage gap will be closed.

Value Based Pricing

An effort is being made to determine if the value of a drug justifies its price. Such measures include cost-minimization, cost-benefit, cost-effectiveness, and cost-utility analysis. They take into account the total costs, including hospital stays, repeated dosages, etc. and, comparing it to a similar treatment, determines whether a drug will actually minimize costs and whether it has a bigger impact on the health of a patient. These cost analyses can all be calculated from the point of view of the hospital, the healthcare system, the government, and the patient, so what is best for one party may not be best for another in terms of cost, making the value of a drug in terms of its price, sometimes a difficult thing to measure.

Quality-Adjusted Life Years (QALY) is a cost-effective measure that determines the value of a drug in terms of the quality of life achieved after taking a prescription drug, rather than the number of years the medication extends a patient's life. However, QALY is subjective to each patient and brings up moral dilemmas such as whether or not it is cost-effective to do a life saving operation on someone who is elderly or has other complications.