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Why prescription drug prices continue to rise (and why you should care)
Chances are, you’ve probably heard about the debate raging in Washington over public healthcare. One of the biggest arguments in this debate revolves around the price of prescription drugs and the pharmaceutical companies that manufacture them.
The problem is simple: prescription pills are extremely expensive in America. Why they’re so expensive is much more complicated. There’s a very complex, sometimes baffling system of negotiations, lobbyists, middlemen, and insurance companies at work behind the scenes.
When some of our cancer drugs have a price tag of $100,000 per patient per year, it’s not surprising that people are outraged. Aside from the richest of the rich, prices like these mean going into serious debt just to stay alive.
Further complicating the issue is the fact that the vast majority of new advances in life-saving drugs are coming from America, where high salaries appeal to the brightest minds. And while it falls under heavy fire, Big Pharma only accounts for 10% of all health care spending in America.
So what’s really going on? Let’s start by taking a look at the biggest issues surrounding prescription drug prices in 2016.
Prescription drug controversies of 2016
American pharmaceutical companies have been lampooned this year, and with good reason. They are raising prices at unprecedented rates.
Johnson & Johnson recently contributed to this debacle by upping the costs of their diabetes and anti-clotting drugs substantially. They join the ranks of Gilead, Amgen, and Celgene in representing Big Pharma’s push to boost prices despite the public outcry.
This is a dangerous and worrisome trend. It’s no longer a matter of production costs slowly increasing over an extended period of time. Makers are now raising prices multiple times throughout the year or raising them by double digit percentage points.
While it’s not all bad news (CVS recently made moves to lower the cost of their Hepatitis C pills through an exclusive deal with Gilead), Big Pharma is more or less playing by its own rules.
The super-complicated pricing structure of prescription drugs
If you go into the store and buy a box of cereal, you understand that the cost is due to a variety of factors, like farming, shipping, marketing, production, etc. The distributors have a regulated, profitable system and make the same amount of money on every box of cereal. It makes sense.
With prescription drugs, it’s a whole different ballgame.
Take the recent story of a certain toxoplasmosis pill. It’s sticker price was set at $13.50 per pill. That changed when Turing Pharmaceuticals took over the brand. Now the price is $750 per pill. That’s an increase of over 5,000% for an old drug.
It’s the same thing as if your Corn Flakes suddenly cost $200 because the brand name changed from Kellogg's to General Mills. How could anything justify such an extreme price jump?
Well, for the sake of a free market economy, the US doesn’t regulate the price of prescription pills. Pharmaceutical companies can literally charge whatever they want. And because of the multitude of options in America, brands have to battle for market share. That often means relying on expensive marketing campaigns to get noticed.
The most glaring problem is that the advertised price isn’t completely accurate. Insurers and pharmacy benefit managers don’t actually pay that rate. They negotiate, earning discounts and rebates, and the price fluctuates as a result.
There’s also the endless middlemen who are required to get prescription drugs from the drug companies to your pharmacy, along with the influence of insurance carriers and hospitals.
But you don’t see any of that. All you see is a mysterious brand label, because that’s what you get at the pharmacy closest to you. For some people, that’s not a big deal. For others, however, it can make all the difference.
Who loses in the prescription drug price game?
Anyone who has good insurance only sees an increase of about 2.8% per year for their prescription pills. That’s because most of their pills are generic, and are produced by multiple drug companies. Generic drugs have more competition, which leads to lower prices.
On the other hand, anyone suffering from a serious illness that requires a newly developed drug for regular treatment is taking the brunt of this price hike. Nearly ⅓ of all drug spending is done by less than 2% of patients. These are the people who get the short end of the stick.
In addition, uninsured (or poorly insured) people have to deal with the high, up-front costs of some prescription pills. This is leading to variety of health problems, with some patients choosing to take a less regular dose of their pills in order to stretch their dollar as far as it can go.
Is there anything that can be done?
Given the cutthroat, domineering nature of Big Pharma, it might sound like the whole supply chain is corrupt. However, actions are being taken. Recently, Michael Pearson of Valeant Pharmaceuticals fell under Senate fire for his aggressive drug price hikes.
At the same time, more affordable options are popping up for patients who rely on prescription drugs. Online tools like perks.optum.com are helping people navigate the marketplace and locate the lowest-priced prescription drugs for their needs. Slowly but surely, we’re finding new solutions to change the healthcare system, and prescription drug prices, for the better.