Why are drug prices so high in the United States? That is a common question many patients ask themselves when they are filling their prescriptions or picking up medications for a loved one. Most people expect a very complicated answer to that question. However, the answer may be more straightforward than patients imagine. In this blog, we explore the reasons behind high drug prices and steps legislators are taking to make prescription drugs more affordable.
How Do Pharmaceutical Companies Price Drugs?
One of the primary reasons why drug prices are so high in the United States is because pharmaceutical companies set the prices of the drugs they produce. In other words, a pharmaceutical company determines how much their drug will cost.
Pharmaceutical companies such as Pfizer or Merck operate in a very similar fashion as other companies in the United States in the sense that they produce a product and set the price of that product. However, in the case of pharmaceutical companies, the product is a prescription drug. With that said, how do pharmaceutical companies price drugs? Pharmaceutical companies price drugs by analyzing what the drug costs to produce. In essence, they determine the price point of their drugs based on the cost of research and development and, of course, the margins necessary to turn a profit.
Prescription Drug Prices in the United States
Like any other business or company, a pharmaceutical company wants to make as much profit as possible on their product. However, unlike most companies, a pharmaceutical company only has a short window of time in which to do so. When a new drug hits the market, a pharmaceutical company only has about 10 – 12 years of exclusivity before cheaper generic medications are made available to patients — meaning, a pharmaceutical company only has about a decade to recoup all of its funding for a drug and make as much profit on the drug as possible. The small window of opportunity to make a profit on a drug, coupled with the lack of governmental control of drug prices, means that pharmaceutical companies can essentially set any price they would like for a drug. For example, if a drug cost $1.00 to make per pill, a drug company can sell that drug for $100.00 per pill to make as much money as they can.
To compound the issue of high drug costs in the United States, pharmaceutical companies can increase the cost of a drug at any point and by any margin. For example, a pharmaceutical company can increase the cost of a drug from $2.00 per pill to $102.00 per pill overnight. It is merely at the discretion of the pharmaceutical companies to set the prices of their drugs and to increase the prices of their drugs, even if that price appears to be unfair.
Price Gouging in the Pharmaceutical Industry
Price gouging refers to the practice in which pharmaceutical companies dramatically increase the cost of drugs to seemingly unfair prices. Price gouging in the pharmaceutical industry is not new, and there are many examples of it in the United States. One of the best-known examples occurred with the drug Daraprim, a medication that can be used to prevent or treat infections in HIV patients. The rights of Daraprim were acquired by Turing Pharmaceuticals. Once acquired, Turing Pharmaceuticals increased the price of Daraprim from $13.50 per pill to $750.00 per pill. When representatives of Turing Pharmaceuticals were asked why the price increase occurred, they responded by essentially saying, “to make a profit.” It may sound horrendous, and many may believe the price increase of Daraprim was outrageous, but the bottom line remains the same. Price gouging is common in the United States, and there are no laws preventing it. However, public pressure may change that.
The price increase of Daraprim brought with it public outrage and the subsequent public outrage brought with it the wheels of change. In a way, the price increase of Daraprim by Turing Pharmaceuticals put a spotlight on pharmaceutical companies and the common practice of price gouging. Once the spotlight was on pharmaceutical companies, it was hard for them to remove it and it was hard for the United States government to ignore the unregulated pricing practices of pharmaceutical companies and the financially crippling impact price gouging was having on the United States public.
As previously mentioned, pharmaceutical companies operate in a similar fashion as other companies. They produce a product and set a price. However, unlike other companies, pharmaceutical companies’ products and pricing can directly impact national health and perhaps indirectly the national economy, thus opening the door for governmental regulation.
New Prescription Drug Legislation
Due to the increasing cost of drugs and the subsequent public outrage, the federal government has acted and passed legislation to combat the skyrocketing prescription drug prices in the United States. One of these pieces of legislation is known as the Prescription Drug Affordability Act of 2015, which was introduced with the hopes of decreasing pharmaceutical companies from raising drug prices and increasing patients’ access to medications. Another example of legislation aimed at pharmaceutical companies is the Improving Access to Affordable Prescription Drugs Act, which was introduced to increase the price transparency of pharmaceutical companies.
Along with the federal government, individual states are also initiating legislation to decrease the cost of drugs. For example, the state of Nevada recently passed what is being called one of the most stringent drug transparency laws in the country. It focuses on diabetes medications to ensure individuals with diabetes can afford the medications they require to maintain their health and overall well-being. The Nevada legislation illuminates a very crucial point that must not be lost in the drug pricing debate or recent legislation. Millions of Americans depend on medications to live, and that is the simple truth of the matter. Without access to medications, millions of Americans may suffer the terrible fate of compromised health, and many will not be able to survive. With so much riding on the availability of drugs and life-saving medications, many believe legislation relating to drug prices must continue, and a price ceiling on prescription medicine must be reached.
Changing Landscape of U.S. Prescription Drugs
Legislation regarding prescription drugs may change the pharmacy landscape and the landscape of healthcare in general. With transparency laws and further legislation to curb the cost of prescription drugs, patients may have access to more medications at lower costs, increasing their ability to maintain and improve their overall health and quality of life. In short, the United States has some of the highest prescription drug prices in the world. However, new legislation may change that, giving patients the financial freedom to obtain the life-saving medications they require.