Prices in a free market are determined by supply and demand. The scarcer the supply and greater the demand the higher the price of a good or service. That is unless we are talking about prescription drug prices.
Rising Faster Than Inflation
You might think that prescription drug prices would decline over time. After all, as production increases to meet demand, the price of most goods decreases.
However, instead of new drug prices leveling off over time – they increase. The 25 drugs that account for spending through Medicare have increased 226 percent since entering the market, according to an AARP study. That means the price of those drugs has more than tripled.
“Brand-name drug prices have been increasing faster than the rate of general inflation for decades,” reports the AARP, “and drug companies have increasingly relied on such price increases for revenue growth.”
The U. S. Department of Health and Human Services reports similar findings despite an increase in generic drug use.
“While the majority (80%) of prescriptions that Americans fill are for generic drugs, brand name drugs accounted for 80% of prescription drug spending in both retail and non-retail settings,” according to HHS, “with little change over time. The top 10% of drugs by price make up fewer than 1% of all prescriptions, but account for 15% of retail spending and 20%-25% of non-retail spending.”
Retail drugs are those purchased at a pharmacy. Non-retail drugs are administered in a clinic, hospital, or nursing home.
Launch Price for New Drugs Skyrocketing
Prices for existing brand-name drugs are increasing, but prices for newly introduced drugs are soaring. The median annual price for new drugs approved by the U. S. Food and Drug Administration increased from $180,000 in 2021 to $222,000 in 2022.
“This surge in price is driven by a concurrent increase in the approval of high-cost drugs,” states a PwC report. “The proportion of approved drugs priced at $150,000 per year or more was 9% in 2008-13 but increased to 47% in 2020-21. Pharmaceutical manufacturer pricing is expected to be in the high single or double digits from 2023- 2024.”
Some treatments, including gene therapies, can cost millions. For instance, Hemgenix, developed to treat hemophilia B costs $3.5 million per dose.
Priced Out of Prescription Drug Treatments
As you can imagine, rising prescription drug prices are widening inequality in treatment.
A KFF survey released in August found that three in 10 American adults missed taking a prescribed medication at least once last year due to cost.
IRA Attacking Prescription Drug Prices
Last year the Inflation Recovery Act (IRA) was signed into law. Several of its provisions armed the government to fight rising drug prices within Medicare.
Now the government can negotiate to lower drug prices. This month HHS issued a list of the first 10 prescription drugs targeted for negotiation.
In addition to price negotiations, the IRA discourages pharmaceutical companies from raising prices faster than inflation. It also restructures how medicare beneficiaries pay their prescription drug benefit.
Insulin Prices
One of the first impacts of the IRA was the lowering of insulin prices to $35 per dose for seniors. However, President Biden used the power of persuasion to extend that benefit to all diabetics. In March, Eli Lilly, the largest insulin producer in the nation, voluntarily capped patient cost for the medication at $35.
“Insulin costs less than $10 to make, but Americans are sometimes forced to pay over $300 for it,” said Biden at the time. “It’s flat wrong.
“Last year, I signed a law to cap insulin at $35 for seniors and I called on pharma companies to bring prices down for everyone on their own. Today, Eli Lilly did that.
“It’s a big deal, and it’s time for other manufacturers to follow.”
Lack of Competition
One of the reasons prescription drug prices defy the law of supply and demand is that they eliminate another key component of a free market – competition.
When a new drug comes on the market, it is patented. Usually that guarantees 15 to 20 years without competition. However, once a patent expires, other manufacturers can start producing the drug. These are the generic drugs that are sold at much lower prices.
Pharmaceutical companies argue that developing a new drug takes time and a lot of money. They contend that the breathing room patents offer allows them to recoup their investment.
The drug companies’ argument is in keeping with the spirit of patent law. That law is designed to reward innovation. The problem comes when those companies game the system.
Drug makers often make small changes in a drug and file a new patent. That way, the company can continue to block competition. This practice is known as evergreening in the pharmaceutical industry.
“Drugmakers build anti-competitive patent thickets because they can: these abusive patent practices are permitted by law.” according to a report by Initiative for Medicines, Access, and Knowledge (I-Mak). “We will not solve the drug pricing problem until we solve the drug patent problem, and the time has come for patent reform.”
Ask a Professional
Patent reform may help bring down drug prices, but that may involve lawsuits and legislative action. Neither of those processes is known for happening quickly.
On the other hand, there are some things you can do right now to save on the cost of your medications.
You might think a chat with your doctor will help. It could not hurt, but you will probably get more information from your pharmacist. Doctors are primarily concerned with diagnosis and treatment. A pharmacist usually keeps close tabs on prices.
Shop For Deals
Savvy shoppers use discounts, rebates, and coupons at the grocery. You can do the same when shopping for drugs. Here are a few strategies you can employ to cut the cost of your medications.
- Coupon companies, such as GoodRx compare brand-name and generic prices at local pharmacies and offer coupons to cut costs.
- Discount cards. There are a lot of prescription discount cards. However, not all treat you equally. Ask your pharmacist about any cards you plan on using.
- Mail-order suppliers. If you plan and order several months of medications at once, these companies may save more than your local pharmacy. Nevertheless, you should check to make sure your insurance can be used to pay for the service.
- Manufacturer Programs. Some drug producers offer patient assistance. These usually have income requirements for eligibility.
If you need more help, you might want to consult with organizations that offer more extensive management of medical costs. One such firm is the Patient Advocate Foundation (PAF). A national charity, PAF provides case management and financial assistance for patients.
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their cat – Pudge. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.
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