Friday, 5 April 2019

Why Are Prescription Drug Prices Soaring?

You can't watch the news these days without seeing at least one story about rising prescription drug prices. Whether it's a personal story about a family that has to choose between insulin and groceries or one about the treatment for a rare neuromuscular disorder that went from the low price of free to the mind-blowing amount of $375,000 a year, these tales are all over. You might even know someone who's personally affected by these soaring drug prices.

A guest post by Megan Ray Nichols

So why are prescription drug prices climbing much faster than the rate of inflation?

Drug Prices vs. Inflation

Researchers just published a study that's been following prescription drug prices since 2008. Between 2008 and 2016, the cost of brand drugs oral medication increased by nine percent a year. Injectable drugs went up by 15 percent annually, and even generic drugs saw some price increases.

For comparison, annual inflation is only about two percent. That means prescription drug prices are rising between five and eight times faster than the cost of your weekly groceries or gas. What's sending the cost of these drugs into the stratosphere? 

A Lack of Competition

When a new product hits the market outside of the pharmaceutical industry, its price is based on the cost of similar competitive products. The amount will rise and fall as manufacturers change their prices to compete with one another, which provides the consumer with a variety of options to choose from.

That competition doesn't exist in the pharmaceutical industry. When the FDA approves a drug and it hits the market, the company that created it has a lengthy exclusivity patent — no one else is allowed to make different versions of that drug, so you won't see any generic versions available until the patent runs out.

The price of the drug also has minimal effect on the demand for it. If a cell phone or a new computer is in high demand, the manufacturer can increase the price, and while some consumers will still spend the money, the high price will reduce the number of sales.

With drugs, there's no difference in demand when sellers drive up the price. Someone who needs insulin when it costs $50 a bottle will still need insulin when it costs $500 a bottle — they'll have to choose buying their medication over feeding themselves for the week, but they'll still buy it.

What's the Real Price?

Imagine going to the grocery store and shopping for food the same way you shop for prescription medication. You're given a food plan and only allowed to buy the foods on that plan — and what you pay for a gallon of milk might be more or less than the guy behind you. You can't shop around, and for some products, there are no cost-saving generic alternatives. No store brands. No buying two percent milk instead of whole because you're trying to watch your weight.

That's precisely what it's like to shop for prescription drugs — and even then, you'll probably never know the real price of your prescription medications. The pharmaceutical manufacturer doesn't set the amount that you cough up — it's arbitrarily set by the insurance company, which is why there's so much variation in what people pay for their prescriptions. You may even be paying more than the guy behind you because the insurance company doesn't want to spend any more for a vial of insulin or an epi-pen than they have to.

With the average American spending more than $1,200 a year on prescriptions, this massive inflation is leaving people with an untenable choice — pay bills and buy food, or make sure they have another month of their prescription medication. 

A Drive for Profit

There are a lot of greedy people in Big Pharma, especially if you listen to mainstream media. There are some examples of this, such as former hedge fund manager Martin Shkreli, dubbed Pharma Bro, who bought the rights to AIDS treatment Daraprim and increased the price from $13.50 a pill to over $750.

The pharmaceutical industry is a very profitable one. In 2017, the global pharmaceutical market was worth $934 billion, and that's expected to climb to over $1.1 trillion by 2021. For many in the industry, it's not about helping people — it's about padding their wallets. Since 1998, the industry has spent more than $3 billion hiring lobbyists to gently — or not so gently — encourage Congress to do their bidding. They hired so many lobbyists in 2016 that they could assign 14 of them to each person in the House and Senate.

This number doesn't even take into account the hundreds of millions of dollars that they've spent over the years in the form of political campaign contributions.

Between 40 and 70 percent of our prescription drugs are imported from other countries, but the average patient isn't allowed to take advantage of the lower prices those countries charge for their medications. 

Moving Forward

Drug prices are quickly heading skyward, increasing up to 15 percent every year. While some of it can be attributed to new drugs and treatments entering the marketplace, that doesn't account for the established drugs and generic alternatives that are also climbing. Greed plays a large part, and so does the lack of transparency in the pricing of these medications. When people are choosing between paying for their prescriptions and paying for their daily necessities, you know there's a problem that needs to be fixed.

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