Known Knowns and Unknowns of Drug Pricing

In the U.S. spending on drugs represents 10% of overall health care costs. Together, hospital and physician expenditures account for 6 times the spending on drugs. Despite a recent uptick in the rate of drug cost growth, over the past 10 years the pace of hospital and physician expenditures has exceeded prescription drugs. Apparently, these facts do not make for eye-catching headlines. By contrast, the recent surge in the price of drugs targeting hepatitis C, HIV, and various cancer and orphan diseases, is salient and the focal point of media attention. For example, last month’s reported 50-fold price increase of Daraprim drew the ire of politicians, policymakers, and patient advocates. Here, we unravel several mysteries surrounding drug pricing and alignment of price and value.