Here’s Why Pharmaceutical Companies Raise Their Prices So Much

Forbes 2 weeks ago
Dollar packs in the capsule, pill. Healthcare costs or financial
Dollar packs in the capsule, pill. Healthcare costs or financial aid concept. 3d

Yes, I’ve ranted about healthcare prices before. On more than one occasion. But I have a new rant for you.

  • It’s not about the high price of new drugs
  • It’s not about a couple pharmo-bro CEOs hiking prices of generic medications by 4 or 5,000%

It’s about brand name drugs already on the market, that, instead of getting less expensive over time (due to increased competition, say, or increasing efficacy of production) get more expensive.

A team out of the University of Pittsburgh tracked the costs of drugs between 2008 and 2016, and discovered some truly disturbing trends. For example, the cost of oral medication rose almost 10% per year over that time, with most of that increase resulting from drugs already on the market. A drug priced at, say, $300 a month this year will be $330 a month next year. They also discovered that the price of injectable drugs rose about 15% per year, compared to an inflation rate of about 2 or 3%. Almost all of those price increases were for medications already on the market.

Here's a table with of their findings:

NOTES The table shows averages across 2008–16. Existing and new drugs are explained in the text.
Authors’ analysis of pricing data from First Databank and pharmacy claims from UPMC Health Plan for ... [+] 2005–16.

Why such huge price hikes? Because no one is stopping pharmaceutical companies from engaging in such practices. Medicare won’t negotiate prices. Private insurers are happy, in the long run, about high healthcare expenses, because they can hike premiums and still get a 4% margin on top of their spending. In fact, insurance companies thrive with high healthcare prices—it’s better to make 4% margin over a huge amount of healthcare expenditure over a small amount.

As I argue in my book, Sick to Debt, we need Medicare to aggressively negotiate drug prices. We need employers and private insurers to demand better prices for medication. We should not tolerate having our medications subjected to runaway inflation.

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