Prescription drug prices are a concern shared by many Americans. Prices have been increasing for decades with seemingly no end in sight.

Back in the 1990s, the U.S. began separating from the pack in terms of overall prescription drug spending. While there are many factors at play, one of them is undoubtedly the higher price Americans pay in comparison to … well, pretty much everyone else.

In many cases, Canadian drug prices are about half of what they are in the U.S., although we’ve had customers tell us they’ve saved far more than 50% and as much as 95%.

Senior citizens are oftentimes hit the hardest by expensive medications, as they’re more likely to need prescription drugs. Drugs approved to treat hypertension, high cholesterol, and diabetes are among the most common prescriptions for older Americans.

Prescription drug pricing is a complex topic with many contributing factors, but one influence (or lack, thereof) in particular sets the U.S. apart from its peers. The U.S. government has thus far chosen to take a hands-off approach with the regulation of drug prices.

With all the discussion of new bills in the Biden administration and continuing economic concerns, it begs the question: Where do we go from here? What will happen with prescription drug prices moving forward?

And will they ever go down?

What is Happening with Prescription Drug Prices in 2022?

If history tells us anything, it’s that prescription drug prices will not only increase in 2022, but also in 2023, just like they have been doing for many years now.

Some years are worse than others, but some experts estimated that the average increase in 2022 would be about 3%. Increases always vary based on the type of drug, and of course specialty drugs are always a different case. Experts estimated their increase at closer to 5%.

But when the new year turned, prescription drug prices were up about 5-6%.

So what is going on? Why are the forecasts low?

Contributing Factors to 2022 Drug Prices

Adding to the regular contributing factors always in play are the unprecedented times we’re living in. Let’s get into why this matters for prescription drug prices.

The “Everything” Shortage

The supply chain suffered initial setbacks during the lockdowns of 2020. Basically, every product you can imagine is in shorter supply because of slowdowns in every single step of the manufacturing process.

Factories in every industry were shut down, which meant fewer goods could be produced. Even upon re-opening, extra measures were taken to ensure safety. In many cases, that meant fewer people working during shifts, which meant fewer goods being produced.

Amplifying the supply shortage is the labor shortage. For a wide variety of reasons (Baby Boomers retiring, some parents needing to stay home to facilitate virtual learning, daycare shortages, etc), many industries are experiencing staffing shortages.

Of course, staffing shortages mean that — even though manufacturers are back to (relatively) normal levels of production — the products aren’t necessarily on the shelves. This starts at backed-up shipping ports and ends in retail stores, where there are plenty of empty shelves.

Having a supply shortage leads to another major contributing factor to drug prices, which is the basic principles of economics.

Basic Economics

The basic laws of economics are rooted in supply and demand. The levels of each variable (in addition to competition) affect any item’s price on a consistent basis. You’ve probably witnessed this in real-time as people try to stock up on various supplies, such as toilet paper, thermometers, pulse oximeters, and face coverings.

Without getting into the weeds behind the theory, it’s important to understand that when supplies are short, but demand remains the same (or even increases), the price will go up.

Essentially, the reason is that people will pay for it because they need it. This is particularly poignant when discussing life-saving medication.

Of course, the opposite is also true — that when supply is high, but demand remains the same (or decreases), the price will go down. The reasoning behind this shift is that there will be an excess of inventory, which costs money to store.

The company needs to pay for the physical space in which to keep the merchandise, in addition to anything else is required to properly store the product (i.e. insulin must remain refrigerated). In an effort to divest themselves of inventory, companies will decrease the price in order to increase demand.

There is no nook or cranny of any industry that is exempt from these basic economic principles — including pharmaceuticals.