It’s a fact of life that when you get sick, you may need to go to the hospital or get medication. This cost is unavoidable in most cases. Unfortunately, between 2014 and 2015, the retail price for over 250 name brand drugs went up at a rate 130 times the rate of inflation. So why exactly are drug costs increasing?
Manufacturer Impact on Drug Cost
The cost of pharmaceutical drugs naturally relies on the cost of creating the drug. The average drug requires between four and 11 billion dollars to develop, and this can take up to 12 years. In order for a drug to go to market, it must go through several steps. First, it has to physically be created, synthesized, and purified during a pre-clinical research stage. The Federal Drug Administration has specific laws every chemist must follow to develop the drug. Before going to clinical trial, many pharmaceutical companies employ animal testing to assure the drug is ready to move to the clinical phase. In this phase, there are human trials ranging anywhere from a small, selective group to a larger number of patients. Only one in ten drugs tested using human trials makes it to the market. The longer a drug takes to get to the market and the fewer drugs that make it to this stage, the greater the drug cost.
Pharmacy Benefit Managers’ Impact on Drug Cost
Under new presidential control, wavering health insurance and drug costs are almost guaranteed. President Trump has voiced his concern over health costs; however, the federal government is not allowed to negotiate directly with the pharmaceutical companies. Instead, Pharmacy Benefit Managers (PBM) can haggle for the price of Medicare-based prescription drugs. CVS’s Caremark, Express Scripts, and Citizens RX are examples of these companies. They try to work with both insurers and drug makers to get the best price for their customers. When the cost of the name brand EpiPen increased by 671 percent, CVS was able to provide a generic version at a fraction of the cost. The PBMs argue that they are not to blame for any increases in drug cost.
Inflated Drug Cost
According to FDA regulation, patents on drugs expire every 20 years. What does this mean for drug cost? Since drugs are covered under a patent, other pharmaceutical companies cannot create a generic version of the drug. They can create a new drug to compete, but creating the drug has to be worth their time. For rarer diseases, fewer individuals purchase the drug, so there is little incentive for more than one company to create a drug. With the lack of competition comes the increased drug cost. The only way to combat the hiked price is to stop purchasing, withholding the power. Unfortunately, these drugs can provide life or death, so this is not a great solution. Additionally, if Medicare were to cut drug costs and cover some of the expenses, this would cause an increase in cost for private or employer-provided insurers.
As long as pharmaceutical companies are in charge of setting the price, it seems drug costs are only going to rise.