The Hidden Costs of Prescription Drug Price Hikes

On the surface, even the smallest price increase may not seem like a big problem. Free market and for-profit healthcare advocates often make the (misleading) claim that price increases keep prescription drugs competitive and available, and are necessary to support the massive research and development budgets that are necessary to test, manufacture, and introduce new medications and therapies to the marketplace.

However, prescription drugs are already much more expensive in the United States than in other developed countries, especially for the millions of Americans living with no or limited health insurance. But even health insurance coverage is not a guarantee of affordability. Many people with insurance still struggle to cover the co-pays, deductibles, and additional out of pocket expenses that Americans constantly face.

Some of the factors that make yearly price increases on prescription drugs especially painful for consumers:

• Average Price Increases are at Least Double the Inflation Rate

  The current inflation rate in the United States is 2.3%. Even a "modest" price increase on the lower end of the spectrum at 6% is still an eye-popping three times the inflation rate for the same exact product.

• Prices Increase Annually, Compounding "Minor" Increases

  Pharmaceutical companies have steadily increased the cost of hundreds of medications every year for the past decade. While growing public outcry and government scrutiny over runaway drug prices has possibly caused some pharmaceutical companies to exercise some restraint in rolling out price hikes for 2020, consumers are asked to pay more and more every year for the same medications.

  This is especially problematic for people on fixed incomes like senior citizens, and low-income families with budgets that are already overstretched.

• The Same Drugs Are Much Cheaper Virtually Everywhere Else

  In Canada, consumers don’t have to worry about steep price hikes with each new year. Canadian pharmacies offer affordable and fairly priced medications because unlike in the United States, the Canadian government can regulate and negotiate prices with pharmaceutical companies, where prices are controlled to avoid the price gouging that occurs in the United States.

• People with Chronic Illnesses and Long-term Medication Are Especially Burdened by Relentless Price Hikes

  For the millions of Americans living with chronic conditions, price increases can be especially tough to absorb. With no end in sight to the pharmaceutical industry’s ability to raise prices on medications as they see fit, Americans can continue to expect to pay higher prices for the same medications in 2020 and every year for the foreseeable future.

Factors That Affect Drug Price Increases for American Consumers

The American prescription drug and medication market is unique in that it operates with little to no limits to what drug companies can charge for even the most basic medications. In Canada and the European Union for example, where most citizens are guaranteed access to comprehensive public healthcare, the government typically negotiates prices and establishes limits on how much pharmaceutical companies can charge for their products.

In addition to an unregulated market that operates like the wild west and is free to charge whatever prices the market is willing to bear, pharmaceutical companies also enjoy monopoly-like conditions in the United States due to an opaque and (some might argue) unfair patent system.

Some of the factors that keep prescription medications more expensive in the United States than everywhere else in the world:

• Patent protections stifle competition and delay access to cheaper generic drugs for years or even decades in some cases
• Deep-pocketed pharmaceutical companies have an unfair advantage and market dominance with more expensive brand name medications
• The government can’t negotiate for fairer prices

• The Savings Haven’t Trickled Down to the Consumer

  While most people with some form of insurance don't usually pay the list price for their medications, the insurance companies usually find ways to indirectly pass the costs back to the consumer, either by increasing co-pays and premiums, by raising deductibles, or by limiting or dropping coverage of certain medications altogether.

  Even when research and development costs are factored in, pharmaceutical companies continue to enjoy record profits in the United States. According to industry data, pharmaceutical companies take over 60% of healthcare industry profits in the United States. While there has been some pressure in light of the push for more regulation and price controls, Americans can most likely expect more price hikes throughout the year.

  In short, medications are big business in America, and despite the backlash over the punishing costs faced by vulnerable consumers, pharma executives are typically rewarded for bringing in profits on the backs of their customers through predatory price hikes on the medications people rely on in the short and long term.