Prescription drugs can be expensive due to patents, lobbying, and lack of government regulation. Manufacturing costs may have little influence on causing high prescription drug prices.
Medically reviewed by Alisha D. Sellers, BS Pharmacy, PharmD
In the United States, prescription drug prices are increasing. According to the U.S. Department for Health and Human Services (HHS), between July 2021 and July 2022, 1,216 drugs increased in price faster than the rate of inflation for that time period, which was 8.5%.
This article details the reasons why prescription drugs can be very expensive in the United States. It also provides tips for how to save money on prescription drugs.
Patents, exclusivity, and monopoly
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According to a 2020 paper, the most important reason for high prescription drug prices is the ownership and control of single drug companies, also known as a monopoly.
These monopolies exist for several reasons. Sometimes, there simply is no alternative to a given drug. In other cases, people may have to use many or all alternatives to a drug that they have already tried. This can happen if a specific drug stops working for them.
Even when there are multiple alternatives, a small number of pharmaceutical companies may have an oversized market share. This can even occur for older drugs like insulin.
Drug companies also hold patents for certain medications. This can make it harder for competitors to provide similar drugs, which adds to monopolies’ control.
Additionally, a 2018 study looked at how these companies use “evergreening” to maintain such monopolies.
Evergreening involves artificially extending drug patents and exclusivities. Evergreening involves reusing or repurposing old drugs but re-patenting them as new.
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Lobbying is when individuals or organizations try to influence political decision-making on issues that matter to them.
There is evidence that lobbying is an important contributor to high drug prices. In 2018, U.S. pharmaceutical companies spent $220 million lobbying politicians.
Drugs for more complex or serious conditions
As the aforementioned 2020 paper explains, newer drugs can be more costly because they are more complex.
This is the case with biologics, which are more difficult to make. Biologics are medications like vaccines and those that improve the way your immune system works, known as immune modulators. Manufacturers face additional regulations when it comes to releasing these drugs, which may also affect pricing.
Drugs can also be very expensive when they’re approved to treat serious conditions. This may be because people and their loved ones are often prepared to spend more money on life-saving treatments.
Cost of research and development
As the same 2020 paper notes, some people estimate that it costs around $3 billion to make a new drug. The process can take many years to complete, and trials may include high failure rates.
However, the paper’s authors state that pharmaceutical companies may exaggerate these costs.
The British Medical Journal (BMJ) has recently estimated that research and development costs do not justify high drug prices. They cite several reasons for this, including:
Drug companies spend much more on selling and admin than on research and development.
Many drug companies spend more money buying their own stock than they do on research and development.
Drug companies use research from publically funded institutions during their research and development processes.
Many new drugs do not offer proven clinical benefits.
Lack of government regulation
There is currently a lack of government regulation of prescription drug prices. The following regulations could help lower drug prices in the United States:
limiting the duration of patent protection, meaning other drug manufacturers could produce alternative generic options faster
providing approval for generic or new, branded drugs similar to those already available, at a faster rate
pricing drugs according to their ability to effectively treat conditions
putting caps on drug price increases
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Recent legal changes mean that Medicare can now directly negotiate some specific drug prices with pharmaceutical companies. As Medicare guidance explains, the negotiations will take place between 2023 and 2024, and could involve lower drug prices by 2026. Those drugs include:
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Private health insurance deductibles and copays
Many private medical insurance plans have deductibles. A deductible is the amount you must pay out of pocket for eligible medical expenses before the plan will cover the costs.
There may also be copayments, which are set amounts you pay toward some medical expenses, or coinsurance, which is a percentage amount you must pay toward the expense.
Depending on the plan you have, all these can apply to drug costs, which may affect their overall affordability.
Saving money on prescription drugs
There are many ways for you to save money on prescription drugs. These include:
getting to know your insurers’ drug list, also known as a drug formulary
when available, try assistance programs for prescription drugs
when available, opt for generic versions
looking out for drug manufacturer discounts
when available and permissible, ordering larger quantities of drugs
There are many reasons why prescription drugs are so expensive in the United States.
One reason is that pharmaceutical companies have monopolies over many drugs. The patent system helps to maintain these monopolies.
There is little evidence that research and development costs greatly contribute to high pharmaceutical costs, but the current lack of government regulation does have an effect.
New recommendations and legislation would be welcomed to try and make drug costs more manageable for people living in the United States.
Download the free Optum Perks Discount Card to save up to 80% on some prescription medications.
