As a doctor, I see patients who struggle to afford their medication price. This issue affects millions of Americans every year. The cost of drugs has increased due to rising healthcare cost.
In 2022, the average price of prescription drugs rose by 7% compared to 2021. Some medications are even costing $1,000 per month. If you take several medications, it can add up to a costly bill.
A new study shows that medication costs are going through the roof. And it’s affecting everyone. According to the Centers for Disease Control and Prevention (CDC), nearly half of US adults report taking at least one medication prescribed for high blood pressure or cholesterol.
Why Are Prices for Prescription Drugs Rising?
One reason why medication price for prescription drugs and their prices have been increasing is that companies use a variety of strategies to increase profits. They do this by raising the prices they charge for their products. Companies also raise prices after they’ve already received government reimbursements for your prescriptions.
Another factor driving up drug prices is when manufacturers introduce new versions of existing medications. Sometimes these more recent versions don’t work as well as previous ones. Or they may cause side effects that weren’t present before. So people need more of them to be effective. In other cases, older medications are being replaced with newer versions.
When a company increases prescription drug prices in an instance, it often does so without any noticeable changes in how the product works. That means people might not realize they’re paying more for the same thing. Even if they notice higher prices, many people aren’t sure whether those prices reflect actual increases in the cost of production or just the introduction of generic alternatives.
Putting Drug Prices into Context
The rise in medicine prices comes against overall inflation and slow wage growth. On top of that, some health insurance plans don’t cover most prescription drugs. It’s challenging to get an accurate picture of what consumers pay out-of-pocket for prescription drugs. But we know that the average family spends about $1,100 on prescription drugs annually.
Inflation alone isn’t enough to explain all the rise in the cost of medicine. There are other factors contributing to the increase in drug prices. Those include:
Cost of R&D
Companies spend money on research and development to discover new uses for old medicines and develop new medications. For example, Pfizer spent $7 billion developing Lyrica, which treats pain. Researchers found that a compound in ginseng could treat fibromyalgia instead.
Some pharmaceutical companies keep their research costs low by using cheaper ingredients, such as Chinese herbs. Others use off-patent drugs that no longer require FDA approval.
Increasing Reimbursement Rates
Companies receive government payments based on how much they sell each medication. These reimbursement rates are negotiated between manufacturers and insurers. Manufacturers can ask for higher rates than Medicare pays to provide coverage for uninsured individuals. Insurers respond by offering lower rates.
Since Medicare doesn’t cover everything, there’s usually a gap between what Medicare reimburses companies, and what private insurers offer. Companies make up for this difference by charging more for covered services.
Increased Prescription Usage in the US
Healthcare professionals are prescribing more medicine. According to the Centers for Disease Control and Prevention (CDC), Americans were named more than 9 million different drugs in 2012. The CDC says that the number has increased since 2001 and will continue to climb. This trend is due to a range of reasons, including:
- Improved healthcare standards
- Advances in medical technology
- New treatments for chronic conditions like diabetes and heart disease
- More patients who are eligible for multiple therapies
- Increased reliance on prescription meds by doctors
- Government regulations requiring certain levels of insurance coverage
- High demand from hospitals and clinics
- Growing acceptance of over-the-counter medications
Adding Up the Factors Driving Pharmaceutical Pricing
When looking at these factors, it becomes clear why the United States has one of the highest per capita spending on prescription drugs. Our high prescription usage rate also explains why the price of prescription meds tends to be higher here than elsewhere.
Our high prescription usage rate helps explain why the cost of prescriptions has been rising faster than wages. In addition to the increased usage, we have fewer competitors and monopolies. We also have relatively few state-run programs that subsidize lower prices. As a result, Americans pay more for prescription drugs than citizens in countries with similar incomes and access to care.
As you may have noticed, rising prescription prices haven’t always been a problem. Medicine used to be less expensive back when it was mostly sold under patent. As patents expired, drug makers started selling generic versions of widespread medications. Large corporations often manufacture generics, so many assume that generics are just as effective as brand-name products. But some studies suggest that’s not true.
Generics aren’t necessarily better. They’re sometimes made from cheap materials or contain lower doses of active ingredients. Many consumers don’t even know whether the pills they buy are branded or generic. Studies show that two-thirds of all generic brands are identical to branded versions. That means most people purchasing a generic prescription might get precisely the same dose of medication.
The lack of competition and section of the consolidated pharmaceutical network also limits the negotiating power of pharmacists. Pharmacists work closely with prescribers. Together, they decide which medicines should be included on formularies, how long new drugs should remain on them before being replaced, and how much insurers can charge for each prescription. These decisions affect pharmacist compensation, making it harder for pharmacists to push their employers to negotiate discounts.
The Problem of Medication Noncompliance
In many cases, noncompliance with a doctor’s recommended treatment plan is the primary cause of medication side effects. Patients usually don’t understand why they’re taking medication, let alone the possible risks and benefits. When confronted with confusing facts or figures, they stop following recommended guidelines. Some patients find it easier to quit taking meds than to figure out if their doctor knows what they are talking about.
It’s no wonder that experts say nearly half of all Americans take three or more types of prescription drugs. And a recent study found that only 14 percent of Americans correctly identified the active ingredient in their drugs.
If you look at the list of the top 10 best-selling drugs, most of them treat chronic diseases like arthritis, diabetes, heart disease, hypertension, and asthma. These conditions require constant attention from doctors and other health professionals. By contrast, symptoms associated with acute illnesses—like colds, flu, and earaches—are fleeting. It takes time for medical science to understand how to address such problems, and it still takes longer to create proper treatments. So most people who experience an acute illness will not receive a cure anytime soon. Instead, they’ll need to rely on over-the-counter remedies until the condition resolves. A study published last year in The Journal of Health Economics showed that over-the-counter analgesic use rose dramatically during the 1990s.
Taking Action on the State and Federal Levels
Suppose your state has already implemented policies to combat high medical costs; see if there’s anything else you can do to help. Take action locally, too:
Ask your local pharmacy to provide information on its prices. Find your nearest “pharmacy price watch” and ask the manager or owner for details about any recent price increases.
Contact your legislators and tell them that you support legislation that would enable Medicare beneficiaries to pay less for their prescriptions.
Find out if your insurance company offers discount programs (e.g., a co-pay card) or plans that include free samples of medications. Ask about any fees they impose on enrollees.
Check out any restrictions imposed on generic drugs by your insurer. For instance, some companies won’t to doing what it takes to get there. I’m all in and ready to go!
Looking to the Future to Contain Rising Health Care Costs
Many experts agree that controlling rising drug costs will be one of the policymakers’ most significant challenges as we enter the 21st century. Several experts have called for creating a national pharmaceutical benefits program similar to the Medicare Part D drug benefit.
They point out that drug manufacturers enjoy monopolies under traditional private sector approaches while providers and consumers bear the brunt of higher costs. One solution would be shifting liability from the manufacturer to the prescription drug provider. This approach would place responsibility where it belongs and offer incentives for pharmaceutical makers to produce cost-effective products.
There are also signs that this may change in the coming years. Last year, the federal government announced a partnership with four major drug companies to bring down costs through better access to new therapies. But even as the plan moves forward, many analysts believe the focus should shift away from reducing the total amount spent on prescription drugs and toward finding ways to control the rise in drug prices. As more Americans struggle to afford their medication bills, it becomes increasingly difficult to argue against these ideas.