The average American paid over $11,000 for a chronic illness prescription in 2013, according to an AARP report. That’s almost 75% of the average Social Security retirement benefit of $15,526, and it’s more than 20% of the 2013 median U.S. household income of $52,250.
There are many reasons why prescription drug prices keep rising: lack of competition and high demand, for instance. Whether the drug companies are merely taking advantage of a lackluster health care system or actually getting away with murder, unaffordable medications are still the unfortunate reality for many.
As we delve into the reasons why your prescription drug costs keep rising, it can be summarized in one word: greed. Here’s why.
1. Doctors are unwilling to prescribe generics
Despite cries for cheaper generic drugs by consumers, brand-name drugs are still dominating the market. The cost of brand-name drugs with no generic alternatives is rising at an average rate of 25% annually. Why is that? It could be doctors are less willing to prescribe a generic over a pricier brand name. One study found doctors who were treated to four or more meals by pharmaceutical companies were 5.5 times more likely to prescribe name-brand drugs over their cheaper generic counterpart.
Next: Doctors aren’t solely to blame. It’s also due to the manufacturer’s unruly spending habits.
2. High costs of drug development
Manufacturing companies say benefits of advanced medicine come at price. This argument is nothing we haven’t heard before. In fact, it costs $2.6 billion to bring a drug to market. And after paying for the research and development, marketing campaigns, and manufacturer salaries, drug companies must make up the capital elsewhere. Hint: It’s at your expense.
Next: See why the manufacturers are just blowing smoke about production prices.
3. Marketing initiatives
A commonly cited reason for high drug prices is companies are forced to spend a lot of money on researching and developing these life-saving medications. However, that’s not really the whole story.
Consumer Reports finds the companies must recoup their marketing costs somewhere, and it seems that comes in a consumer price hike. Industry strongholds Johnson & Johnson and Pfizer spent just 13% and 16%, respectively, on research and development, according to Consumer Reports. But both companies spent a staggering 30% of total resources on selling, marketing, and administrative initiatives.
Next: That’s not the only money they’re tossing around.
4. They entertain lobbyists
The pharmaceutical and health product industry is quite the big spender when it comes to lobbying American politicians. The other industry coming in right behind it? You guessed it: insurance companies.
Next: Patents discourage competition.
5. Patent protection
Originally hoping to promote innovation, the United States implemented a patent system allowing drug manufacturers to be the sole producer of their patented drug for 20 years — during which time drug prices are on hold and the companies can charge you whatever they want. That’s a shame because drug prices are known to decline by 55% of their original brand-name cost once two competing generics hit market.
Next: See what happens to prescription drug prices at the 20-year mark.
6. Drugs are labeled as ‘evergreen’
Reinventing old medications to form a “new” one is known as “evergreening.” And it’s a popular phenomenon for common drugs, such as insulin. George Slover, senior policy counsel for Consumers Union, told Consumer Reports, “Evergreening keeps drug prices high for consumers because it makes it harder for lower-cost generic alternatives to enter the market and give consumers a choice.” By changing even the slightest drug element, the pharmaceutical companies become eligible for a new 20-year patent, thus gaining longer protection from competitors.
Next: The common cold gets left untreated. Here’s why.
7. They’re pushing specialty drugs
Always concerned with the bottom line, companies are now spending more money on marketing and development of orphan drugs that treat fewer people rather than common cures. They’ve learned quickly people will pay more for a specialty drug that cures a chronic, life-threatening disease over a simple antibiotic. It’s easy to see why drug companies would be prone to developing these specialty drugs. Antibiotics are only needed for a week, but chronic medications are used for years.
And the better they are at marketing the drug toward additional diseases, the higher the price tag will go. Yes, these drugs can have life-changing effects, but that’s only a viable option if they remain affordable for consumers.
Next: Why some groups pay less while others cannot
8. Limits on Medicare negotiation
Due to Medicare Part D laws, the largest purchaser of prescription drugs is prohibited to negotiate lower drug prices. Compare that to the Veterans Health Administration, which has a list of drugs it chooses to cover. As a result, its bargaining power allows it to pay 80% less for brand-name drugs than Medicare Part D, just by promoting competition.
Next: The U.S. pays more than other countries for prescription drugs.
9. We’re out of sync with the rest of the world
As a result of significantly less bargaining power, U.S. citizens pay more for prescriptions than citizens of many other countries. The Wall Street Journal found prices were higher in the U.S. than in England for 39 out of 40 top drugs surveyed. And Denmark spends only 35 cents per capita on prescription drugs, and Canada spends 72 cents for every $1 spent in the U.S., according to a Center for Economic and Policy Research study.
Next: Single-source drugs for popular treatments are getting expensive.
10. Common single-source drugs are getting costly
Now that companies realize the money lies with single-source, patent-protected drugs, they’re more focused on producing them, despite that they comprise less than 10% of all prescriptions filled. More than likely, one of your brand medications has been affected by a price increase as a result. From 2010 to 2016, drugs related to skin-care treatments, such as psoriasis, eczema, and acne, saw their prices inflate by 30%. Drugs that combat various cancers saw a 17% hike, while high-cholesterol therapies rose 18%.
Next: Don’t expect sticker relief anytime soon.
11. Popular specialty drugs are less likely to have cheaper alternatives
Due to complex approval processes, it’s unlikely we will see price relief on common specialty drugs. They are harder to replicate and replace with cheaper generics due to clinical complexities within the drug and longer manufacturing timelines. Often, these drugs are approved for a generic replacement, but production gets delayed. Blue Cross Blue Shield estimates it could be years before cheaper alternatives are introduced to the market.
Next: Insurance companies are partially to blame for higher prices.
12. Insurance won’t cover it all
When questioned about price hikes, insurance companies often try to point the finger right back at the blood-sucking pharmaceutical companies. High-priced drugs with few alternatives directly impact how much insurance companies are willing to cover and how much you’re forced to pay out of pocket. To pad their profit margins, you’re forced to either fund a higher copay, higher premium, or higher deductible.
A survey by Kaiser Family Foundation found the average deductible in 2016 rose to $1,478. And for the first time in history, over half of all workers have deductibles of at least $1,000 or more (and $2,000 for smaller firms).
Next: Importing drugs is illegal.
13. Cheaper drugs cannot be imported into the States
For those considering looking outside U.S. borders for cheaper drugs, know the government has put the kibosh on it. The FDA cites concern over counterfeiting and increased risk of harm as its reasons for limited importation. And though that Viagra prescription might be cheaper in Canada, your need for it is not life-threatening (to the government, at least). And thus, it cannot be imported for less money.
Next: Why we don’t know the drug’s “real” price
14. Benefit managers negotiate prices with manufacturers
When you fill your prescription, you pay the rate determined by your insurer and the drug manufacturer. But today, many insurance companies are using pharmacy benefit managers to negotiate rebates and discounts on their behalf in exchange for preferential treatment. As a result, you pay the agreed-upon price with no seat at the negotiation table.
Next: Your brand-name drug just got more expensive.
15. Brand-name drug prices are rising
Generics make up most of the market share in terms of availability and number of prescriptions filled, but brand drugs still account for most of the total drug spending. Blue Cross Blue Shield notes brand names’ individual unit price has increased by 17%. What’s worse is drugs with no cheaper alternative also saw a 17% increase, ultimately forcing the hand of consumers in need of proper medication.
Next: Are we better off than those in Europe?
16. We ride the open-market system
Robert Zirkelbach, executive vice president at the Pharmaceutical Research and Manufacturers of America, told AARP having an open market means “patients in the U.S. can access the most innovative treatments far earlier than any other country,” It can take patients in Europe almost two years longer to get access to cancer medicines than American patients, according to Pharmaceutical Research and Manufacturers of America data. Therefore, as consumers, we might turn a blind eye to cost and focus solely on benefit.
Follow Lauren on Twitter @la_hamer.