Tom's Take Blog

April 12, 2017

Why do prescription costs continue to climb at such an unprecedented rate?

Tom’s Take: To understand why these prices are on such a steady climb, we must first take a closer look at the drug development and distribution process.

 

As companies are developing new drugs, there are often market exclusivity requirements enforced by the U.S. Food & Drug Administration (FDA). This allows pharmaceutical firms to create their brand-name drugs and patent them for several years while ensuring that other, lower-cost generics can’t be introduced during that same timeframe. The obvious problem here? A monopoly can be created in the market for certain drugs.

 

Take the EpiPen for example. The only product of its kind available for years, this life-saving injectable that is used to treat allergic reactions cost less than $60 a dose about 10 years ago. When faced with competing brands set to arrive in 2015 though, EpiPen prices quickly went up – one can assume only to try and capture as many dollars as possible while the manufacturer still dominated the market for this product. The EpiPen reached upwards of $600 for a two-pack after the other alternatives experienced some setbacks.

 

Another issue is the lack of price negotiation. Unlike other countries, the United States does not have the power to negotiate prescription costs with pharmaceutical companies. This is somewhat of a “scratch your head” situation as Medicare and Medicaid set reimbursement amounts for health care services, but don’t have this same authority with prescription drug costs.

 

Because of this, if a drug price seems excessive, there’s no way to challenge it. The waiting game begins until generics enter the picture and prices gradually come down.

 

The process is definitely flawed. An article in Money reports an average increase of 10% in prescription drug costs over a one-year period from 2015 to 2016. That shouldn’t be the case when the average overall inflation rate is just 1%. There’s a definite problem when so many consumers have to forego the necessary medications – or other necessities of living – because they can’t keep up with the costs.

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