Prescription Drugs


The average Medicare Part D enrollee takes 4.5 prescription medications on a regular basis. Appropriate use of prescription drugs can prolong life, improve quality of life, and postpone or replace the need for intensive, often expensive medical treatments. Given older adults’ extensive use of prescription drugs, it is vital to ensure that they are safe, effective, and accessible.

The vast majority of prescriptions dispensed are for and about four-fifths of all prescriptions dispensed are for generic drugs. However, prescription drug spending is driven by considerably more expensive brand name and specialty drugs like biologics. On average, the retail price of generics is about 80 to 85 percent lower than that of their branded counterparts, and their prices have generally decreased in recent years with some notable exceptions. Retail prices for widely used brand-name and specialty prescription drugs continue to increase at rates that greatly exceed the rate of inflation. 

Biologic drugs are an important and rapidly growing subset of specialty prescription drugs. Biologics are derived from living organisms; they may require special handling and are usually administered by injection. A large and growing share of prescription drugs in development are biologics.

Until the passage of the Affordable Care Act (ACA), the Food and Drug Administration (FDA) did not have the authority to approve generic versions of biologic drugs or biosimilars. The ACA also provides innovator biologic manufacturers with 12 years of market exclusivity before biosimilars can enter the market. This lack of competition helped make biologics among the most expensive prescription medicines on the market. Prices are about 22 times higher than those of traditional brand-name drugs.

Specialty drugs like biologics were once reserved for rare conditions but are now commonly prescribed for chronic conditions that typically affect older populations, such as rheumatoid arthritis, multiple sclerosis, and certain cancers.

Patient cost-sharing for many expensive drugs has shifted to a coinsurance model—for example, rather than a set copayment of $100, patients may have to pay a percentage of the drug’s cost, such as 25 percent to 60 percent of a drug that costs $1,500 to $15,000 per dose. This form of cost-sharing directly exposes consumers to high prescription drug prices and price increases.

Employers, state governments, and other payers have realized that this model is not sustainable, and some are exploring various strategies to help keep these drugs affordable for those who require them. One option is reference-based pricing (i.e., setting the payment amount for a group of clinically comparable drugs on the basis of the least costly one). This approach still allows patients to obtain the more expensive products, although at a greater cost to them, and can result in improved payment accuracy and savings (see also this chapter’s section on Health Care Coverage: Private Insurance—Private Health Plans: Managed Care).

One increasingly popular option is to limit cost-sharing. While this concept will reduce costs at the pharmacy counter, requiring payers to absorb an even larger share of prescription drug costs may ultimately lead to higher premiums and cost-sharing for consumers generally. Limiting cost-sharing also insulates consumers from prescription drug prices, which could encourage manufacturers to become even more aggressive with their pricing practices in the future.

The appropriate use of prescription drugs can be improved by expanding clinicians’ and patients’ understanding of, and appreciation for, the often-delicate benefit-risk balance associated with all medicines. Expanded medication therapy management services—in particular, those provided by pharmacists and those designed for patients with multiple chronic conditions—are essential to fine-tuning this balance.

Other efforts to help guide the appropriate use of prescription drugs include:

  • utilization management tools, such as prior authorization and quantity limits;
  • formularies and preferred drug lists;
  • unbiased, evidence-based academic detailing;
  • tracking quality by means of enhanced medication adherence and reductions in hospitalizations and medical visits for adverse drug events; and
  • benefit design that facilitates access to high-value therapies.

It is also crucial to ensure the safety of the prescription drug supply. One potential threat is counterfeit, or fake, drugs. Patients who receive counterfeit drugs may experience unexpected side effects or a worsening of their medical condition. Counterfeit drugs may also contain incorrect or hazardous ingredients. The World Health Organization estimates that the incidence of counterfeit drugs is less than 1 percent in the U.S. but a much higher percentage of the medicines in some developing countries may be counterfeit. The Drug Supply Chain Security Act of 2013 includes new licensing, record-keeping, and product identification provisions designed to help reduce the threat of counterfeit drugs

Another growing tension surrounds the Food and Drug Administration’s review and approval process for new prescription drugs. Although the U.S. prescription drug approval process is, on average, faster than that of any other major nation, some stakeholders believe that reform is needed to speed the process further. One proposal is for the FDA to find ways to incorporate real-world evidence or data collected from sources outside traditional clinical trials that reflect the experiences of patients in real-world situations, in their review and approval process. Other proposals would provide additional market exclusivity for certain products. For example, some stakeholders have argued that the FDA should provide additional exclusivity for products that fill an unmet medical need, which the FDA defines as providing a therapy where none exists, or that may be better than available therapy.


Ensuring access to drug therapies

In this policy: FederalState

Federal and state governments should implement proven programs to increase access to appropriate drug therapies that have been approved by the Food and Drug Administration (FDA). Such programs include comparative effectiveness research and academic detailing. They also should adopt value-based approaches to reducing prescription drug costs, e.g., price negotiation, well-designed preferred-drug lists, and timely, easily accessible clinical and economic information for consumers, providers, and third-party payers.

Cost should not be used as the sole determinant of a prescription drug’s value. (See also this chapter’s section on Value-Based Purchasing in Medicare.)

Initiatives to limit beneficiaries’ out-of-pocket costs for prescription drugs should be implemented in conjunction with policy changes that will help reduce prescription drug prices.

Policies and legislation should not unnecessarily impede the substitution of biosimilar products that the FDA designates as interchangeable with brand-name biologic products. If when substituting biosimilar products for their brand-name biologic the FDA deems that the products are interchangeable, the process for counterparts should be the same as the process for substituting traditional generic products for their brand-name counterparts

AARP supports the use of reference pricing for clinically comparable prescription drugs under the following conditions:

  • there is sufficient evidence to determine whether the products are clinically comparable;
  • the process for determining which products should be subject to reference pricing is transparent and predictable, and allows for public comment from a wide range of stakeholders;
  • medically necessary exceptions are permitted; and
  • patients are permitted to pay out of pocket to purchase the more expensive product(s) even if they are not medically necessary.

(See also this chapter’s section on Health Care Coverage: Private Insurance—Private Health Plans: Managed Care.)

Drug selection and utilization management

In this policy: FederalState

As major payers for prescription drugs (through Medicare Part D and Medicaid), the U.S. Department of Health and Human Services and state governments should promote informed prescribing choices through unbiased comparative effectiveness research and academic detailing. Utilization management should reflect value-based insurance-design principles that promote access to high-value therapies. Medication therapy management services, particularly those delivered by pharmacists, should be targeted to people most at risk of adverse drug event-related medical visits and hospitalizations.

Ensuring reasonable prices

In this policy: FederalStateLocal

Policymakers should encourage competition that enables purchasers to obtain price discounts from pharmaceutical manufacturers and efforts to increase transparency in the pharmecuetical supply chain that uphold or improve negotiation and competition. Cost savings achieved through negotiation, competition, or both should be passed along to consumers via lower prices, cost-sharing, or enhanced benefits.

Efforts to address high prescription drug prices should be as holistic as possible to help reduce the possibility of cost-shifting.

Contracts between pharmacies and pharmaceutical managers should not include gag clauses that bar pharmacists from informing consumers that a drug may be available for a lower cost. 

“Pay-for-delay” practices that allow brand-name drug manufacturers to extend market exclusivity beyond the anticipated patent expiration (by compensating the would-be generic manufacturer to delay market entry) should be prohibited. Such practices currently in effect should be investigated by the Federal Trade Commission (FTC) to determine their impact on competition and drug prices.

States should use the purchasing power of Medicaid, other state-funded prescription drug benefit programs (such as those for state employees), and private purchasers (to the extent they choose to participate) to obtain prescription drug price discounts from manufacturers and pharmacies.

Efforts to expand the use of value-based purchasing must ensure that the Medicaid program retains access to reduced prescription drug prices that are equal to or better than what they receive under the Best Price requirement.

States should pursue both intrastate and interstate prescription drug buying pool agreements that can reduce drug benefit costs for health plans and can provide price discounts to all residents who currently pay for their prescription drugs entirely out of pocket.

States should encourage price competition by developing online prescription drug price postings for consumers, based on retail pharmacy information classified by zip code. For prescribers, relative prices within therapeutic categories should be easily accessible through electronic prescribing systems.

Market access to biosimilars (generic biologics) should be accelerated through an FDA regulatory pathway that would reduce the 12-year market-exclusivity period granted to innovator biologics under the Affordable Care Act.

Transparency in the prescription drug development and pricing process should be increased, particularly in cases of drug manufacturers that benefit from taxpayer-funded research.

Activities that take place in the prescription drug supply chain—which includes wholesalers, pharmacy benefit managers, and pharmacies—that artificially inflate prescription drug prices, should be prohibited.

Federal, state, and local governments should ensure that prescription drug launch prices and subsequent pricing decisions are reasonable, justified, and support improved consumer access and affordability.

Assistance programs

In this policy: State

State pharmaceutical assistance programs that combine enhanced access with pharmacist-led medication management services can help to optimize prescription drug use. Existing state programs, especially for Medicare beneficiaries who do not qualify for the Part D Low-Income Subsidy, should be maintained. Pharmaceutical manufacturer-sponsored assistance programs should utilize a standardized application form to simplify the enrollment process.


Formularies and preferred drug lists (PDLs)

In this policy: FederalState

Well-designed drug formularies and PDLs should be used to enhance quality and conserve resources.

Appeals of coverage decisions

In this policy: FederalState

A clinically sound and well-communicated exceptions and appeals process must be in place. The process should allow appeals to an independent, objective third party and should require as prompt a decision as a patient’s condition mandates. Data should be collected to permit at least an annual evaluation of the process’s appropriateness regarding clinician and consumer burden and effects on patient health outcomes.

Insurers should be required to show cause before denying payment for a particular drug when the prescriber has deemed the insurer’s recommended substitute to be medically inappropriate.

Step-by-step directions for initiating the exceptions and appeals process should be clearly identified to consumers. Patients who obtain a nonpreferred drug through the exceptions process should pay for it at the cost-sharing tier level associated with preferred drugs, if the prescriber determines that therapeutically similar preferred drugs are medically inappropriate for the enrollee.

Pharmacy benefit managers (PBMs)

In this policy: FederalState

FTC should monitor relationships between PBMs and vertically integrated acquisitions for effects on consumer choice, clinical outcomes, and retail price.

The sharing of any claims records among PBMs, insurers, health plans, pharmaceutical manufacturers, and pharmacies should include guarantees of patient confidentiality.

Gag clauses in contracts between pharmacies and pharmaceutical benefit managers that bar pharmacists from informing consumers that a drug may be available at a lower cost should be eliminated.

Direct-to-consumer marketing

In this policy: FederalState

Evidence-based clinical-decisions support systems should be broadly integrated. State and federal efforts to limit gifts to prescribers through mandatory reporting could also help indicate the drug-therapy classes for which evidence-based decision support is most needed. Further, states should limit the dollar value of gifts from drug manufacturers to prescribers. The effects of direct-to-consumer advertising for prescription drug products on consumer choice, cost, and clinical outcomes should be further studied.

To help counter the increasing influence of pharmaceutical marketing, the FDA should consider implementing a moratorium on direct-to-consumer advertising for new prescription drug products until their manufacturers provide clear and convincing evidence of safety and effectiveness within the broader population.


In this policy: State

States should adopt legislation to prohibit the sale of prescriber profiling data for commercial detailing purposes. States should implement academic detailing programs to educate prescribers through unbiased, evidence-based research. These should be supplemented by related consumer-awareness and educational-outreach campaigns.


Consumer education

In this policy: Federal

Patient medication information (PMI) should be supplemented by pharmacist counseling at the point of dispensing and by other clinicians at the point of prescribing (including drug samples). Patient and caregiver preferences for PMI delivery method, format, font size, and language should be established prior to dispensing a medication and should be delivered accordingly.


Consumers ability to choose mail-order pharmacies

In this policy: State

States should prohibit insurers, health plans, and state Medicaid agencies from requiring enrollees to purchase prescription drugs only by mail.

States should not adopt laws and regulations that impose unnecessary and costly burdens on out-of-state mail-order pharmacies.


Consumer-friendly labeling

In this policy: Federal

The FDA should develop patient-centered drug labels that emphasize, in easily readable fonts, the most important details for safe and effective use. Further, the agency should work more deliberately with manufacturers to avoid sound-alike and look-alike confusion among drug names and should work with prescribers, other clinicians, and consumers to establish appropriate responses to emerging labeling and drug safety problems.


Promotion of off-label use

In this policy: Federal

Drug companies should continue to be prohibited from promoting drugs for uses that have not been approved by the FDA.

Federal and state agencies that administer public insurance programs should enforce reimbursement standards that permit reimbursements only for drugs that have a medically appropriate use and should devote more attention and enforcement resources to monitoring requests for reimbursement of drugs that have a history of inappropriate off-label promotion.

Clinical trials

In this policy: FederalState

Registration of all Phase II through Phase IV clinical trials on the federal website—including plain-language summaries of results, regardless of outcome—should be mandatory.



In this policy: Federal

Given the enhanced access to prescription drugs through Medicare Part D and the ever-increasing utilization of drugs by older adults, funding for the FDA’s post-marketing surveillance activities (e.g., Sentinel) and communication of emerging risk information should be allocated more equitably in relation to pre-marketing approval activities. Given the accelerated implementation of FDA-approved Risk Evaluation and Mitigation Strategies (REMS) for many biologics and other prescription drugs, the Agency for Healthcare Research and Quality should undertake research to determine REMS’ effect on appropriate prescribing, patient adherence, and health outcomes.

Policymakers should continue to support the Patient-Centered Outcomes Research Institute, established by the ACA. The institute’s research findings should be made easily accessible to all stakeholders.


Reimportation and importation

In this policy: Federal

Reimportation and importation of prescription drugs from licensed pharmacies and wholesalers operating in Canada should be permitted with strong safety standards. Strong safety standards—including pedigree requirements and anti-tampering and anti-counterfeiting measures—must be implemented as part of any importation system. The FDA should be given sufficient resources and authority to ensure that the safety of drugs imported from Canada or other countries is comparable to the safety of drugs dispensed in the U.S.


In this policy: Federal

The Federal Trade Commission should continue monitoring restraints of trade in the generic drug industry and should initiate appropriate action against any brand-name or generic drug manufacturer alleged to have violated federal antitrust laws.

Ensuring safety in expedited FDA review and approval processes

In this policy: Federal

Any efforts to expedite FDA approval processes should ensure that patient safety remains paramount. Given FDA’s limited resources, expedited approval should only be granted to products that meet an unmet medical need and substantially improve upon existing therapies.

FDA approval processes should only rely on real-world evidence if it has been conclusively proven that such evidence provides valid and reliable information about a drug’s benefit and harm.

FDA should be granted appropriate resources to conduct adequate post-marketing surveillance activities. FDA should be granted the authority to hold manufacturers accountable if they do not submit required post-marketing studies.

Extra market exclusivity should only be granted in extremely limited circumstances and only for innovations that meet an unmet medical need and substantially improve upon existing therapies.

An increasing number of orphan drugs have additional indications that expand their use and sales dramatically. Orphan Drug Act incentives should only apply to medicines that fully meet the definition of an orphan drug.

FDA should establish clear guidelines for when and how pharmaceutical manufacturers can share scientifically valid and reliable pharmacoeconomic information with payers for drugs undergoing FDA review.

Anticompetitive Behavior

In this policy: Federal

Federal policymakers should ensure that practices do not unfairly exclude competition in the prescription drug market.