Study Shows Drug Prices Rise When In Short Supply

The cost of healthcare has been on an upward spiral. Patients decry the rising costs of insurance and a narrowing coverage spectrum. What one cannot afford in insurance premiums, he or she has to pay in out-of-pocket payments that continue to skyrocket by the day. The recent revelation by Associated Press that medicine price increment outpaced decreases by 16-to-1 in the last three years is not helping the situation.

Medicaid and other health insurance providers have to negotiate with everyone from physicians to big pharmaceutical companies. Such negotiations have yielded massive savings to the payers. However, research suggests that such perceived savings, especially in the drug sector, are at best mischievous.

Some commentators are of the opinion that big drug manufacturers are to blame for the skyrocketing cost of public health—and for a good reason. Researches support this widespread opinion. However, about half of the Americans seem to support pharmaceutical companies. Instead of placing the blame squarely of drug makers, they decry the government’s efforts to regulate the cost of care.

Before passing the buck too, let’s understand the pharmaceutical industry.

It takes time and effort to develop new drugs. According to the FDA, most new drugs take up to 10 years before approval. During that time, a company will formulate a drug, conduct animals trials and clinical trials before the FDA is moved. Once a drug is approved, the company has to recoup its investment. It gets patents and exclusive rights to make and distribute the drug for up to 10 years. After which, the drug becomes publicly accessible. Generic drugs are made off it by all and sundry.

Because of the massive outlay required, very few companies can afford to invest in the endeavor. Even fewer are willing to take risks when it comes to developing new drugs. Companies have to weigh the economies of developing a drug. A medical condition that affects a small population will not get investors—if it does, that drug would potentially sell for six figures to be worth the effort. If the company finds itself alone in a particular market segment, it will have to set its preferred price, not the amount that the customer can afford. Unfortunately, the chance of that happening is always high.

Drug makers can only thrive in a capitalist environment. Without that incentive, most of them would not invest millions of dollars in developing new drugs. They would simply wait for others to do the hard work for them. They would enter in the generic drug market where they will mass-produce them. Courtesy of the patents, they are not afraid to bet big on drugs. However, that alone is not a reason enough to exploit the customer. That is where the legislative process may be lacking.

Pharmaceutical companies always abuse this protection of development and innovation. A case in point is EpiPen. In the past, big pharmaceutical companies have been adjusting prices of drugs up to three times in a year, mostly increases. They make some few decreases during elections then return to their usual ways after the election cycle.

Unexplained shortages

There were about 400 reported drug shortages in the last three years. Only about a third of those shortages emanated from manufacturing challenges. It seems the deficits emerge from nowhere. What is worrying is that pharmaceutical companies thrive during shortages. Most of them have enjoyed double-figure price hikes after shortages.

There is always speculation that the big pharmaceuticals companies are responsible for the supply crunch. Why would they move with speed to take advantage of the crisis by hiking prices if they didn’t have anything to do with supply troubles? Would they not just be okay with their pricing model before the crunch? They are not content; they want more.

They hike more often than they cut

As the company continues to recover from its initial investment, would it not make sense to reduce the price of the drug? It seems it does not. Price changes show an industry that keeps an upward trend no matter the situation. The prices for old drugs continue to soar. They don’t even explain the price hikes. They just wake up one day and slap a 400 percent price markup on an old drug the way Nostrum did.

Out of every 96 cases of price hikes, there is one decrease. Most price increases range between 9 and 9.5 percent. There have been outliers in this regard with some drugs setting a tenfold markup. On the other hand, the decreases have been piecemeal. Few go past the 5 percent mark.

The rate of increases has slowed down

Should we be happy that the rise has slowed down a bit? History tells us we cannot. When the issue of health care costs or cost of drugs is hot, big drug companies keep a low profile. They don’t make any drastic announcements. Once the issue dies down, they rise again.

The current slowdown represents a somewhat spirited political interest in keeping the cost of drugs down by the executive. President Trump and his administration will hope to get a breakthrough though what they call American Patients First.

It costs less for patients outside the US

Transparency in the healthcare industry is the number one impediment to resolving the current cost crisis. How pharmaceutical companies manage to sell drugs cheaply outside the US is a puzzle. Americans pay more for the same drugs, and the drug makers don’t seem to be bothered by that situation.

This development has prompted the executive to toy around with the idea of allowing competing drugs from outside the country. However, the most costly medical conditions rely heavily on Americas biggest pharmaceutical companies. Generic drugs and drugs developed outside America need an FDA approval, something that takes a lengthy period. It seems the light at the end of the tunnel is dimming.