Drug prices continue upward climb as leaders seek solutions

In the first month of 2019, pharmaceutical companies have increased prices on more than 250 prescription drugs despite calls from the president and Congress to reduce drug costs.1 These hikes have evoked the ire of President Trump, who has pledged to reduce drug prices in the United States, which are higher than in most other developed nations.2

A study published in January in the journal Health Affairs showed that prices on brand-name oral prescription drugs increased by more than 9 percent annually from 2008 to 2016. During that same time frame, injectable drug prices rose more than 15 percent a year. Insulin doubled in price between 2012 and 2016, according to the Health Care Cost Institute.3

In more positive news, though drug price increases did continue for 2019, data from RxSavings Solutions, which helps health plans and employers find lower cost prescription medications, showed the overall number of price increases was down by about a third from 2018, when pharmaceutical companies raised prices on more than 400 prescription medications.4

As policymakers craft potential solutions, health care in general and drug prices in particular are variables that the average consumer simply cannot control. It’s up to each of us to create a strategy of combined savings and insurance vehicles to help pay for potential future health care expenses. If you’re concerned about how you’ll be able to manage health care expenses during retirement, we can help you consider your available options.

Drug manufacturers appear to have raised prices for reasons that go beyond simply recovering expenses. While the Health Affairs report found that some 2019 price increases were driven by innovation, most were increases to medications already in the market.5

Many industries generally rely on the free market to set prices – essentially charging what consumers are willing to pay based on supply and demand. However, in some cases when there are few competitors, there are few rules in place to prevent companies from raising prices across the board. In the case of health care, it also can mean that those who can’t afford treatments may be affected.

The American Medical Association’s website truthinrx.org explores the prescription drug marketplace, advocating for transparency in pricing. The site notes that even generic drugs – generally expected to be less expensive than name brand alternatives – aren’t immune to price increases. It offers the example of generic antibiotic tetracycline, which in 2012 was priced at pennies per 500 mg capsule but rose to more than $8 per 500 mg capsule in 2013.6 Another practice the site calls out among drug manufacturers is eschewing the expensive and time-consuming process of developing new drugs by instead acquiring existing drugs and raising their prices.7

It’s no secret that companies spend billions of dollars marketing medications, much of that aimed directly at physicians and medical facilities. Each year, health companies spend approximately $30 billion on marketing. Of that amount, about two thirds (68 percent) is targeted at persuading doctors and facilities to prescribe their drugs. That amount does not include the advertising targeted to consumers in television and magazine ads.8

While the Trump Administration has worked to negotiate with drug companies and published a plan to reduce drug prices, including potentially basing Medicare payments for some drugs on international pricing levels, thus far it appears to have had little impact. It may take legislative action to slow the trajectory of rising drug prices. In January, House Democrats proposed legislation designed to increase generic competition among patent-protected U.S. brand-name drugs deemed “excessively priced,” allow Medicare to directly negotiate with pharmaceutical companies for volume-based pricing, and enable American consumers to purchase lower-priced medications from Canada.9

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1 Michael Erman. Reuters. “Drug companies greet 2019 with U.S. price hikes.” https://www.reuters.com/article/us-usa-drugpricing/drug-companies-greet-2019-with-u-s-price-hikes-idUSKCN1OW1GA. Accessed Jan. 29, 2019.

2 Dan Diamond, Adam Cancryn and Sarah Owermohle. Politico. Jan. 8, 2019. “Trump summons advisers to White House over drug price hikes.” https://www.politico.com/story/2019/01/08/trump-summons-advisers-drug-price-hikes-1068652. Accessed Jan. 17, 2019.

3 Alison Kodjak. NPR. Jan. 7, 2019. “Prescription Drug Costs Driven By Manufacturer Price Hikes, Not Innovation” https://www.npr.org/sections/health-shots/2019/01/07/682986630/prescription-drug-costs-driven-by-manufacturer-price-hikes-not-innovation. Accessed Jan. 17, 2019.

4 Michael Erman. Reuters. “Drug companies greet 2019 with U.S. price hikes.” https://www.reuters.com/article/us-usa-drugpricing/drug-companies-greet-2019-with-u-s-price-hikes-idUSKCN1OW1GA. Accessed Jan. 29, 2019.

5 Alison Kodjak. NPR. Jan. 7, 2019. “Prescription Drug Costs Driven By Manufacturer Price Hikes, Not Innovation” https://www.npr.org/sections/health-shots/2019/01/07/682986630/prescription-drug-costs-driven-by-manufacturer-price-hikes-not-innovation. Accessed Jan. 17, 2019.

6 TruthinRX.org. American Medical Association. 2019. “Drug prices in America are among the highest in the world. Who is pulling the levers on drug pricing?” https://truthinrx.org/price-hikes-secret-deals. Accessed Jan. 17, 2019.

7 Ibid.

8 Beth Mole. ARS Technica. Jan. 11, 2019. “Big Pharma shells out $20B each year to schmooze docs, $6B on drug ads.” https://arstechnica.com/science/2019/01/healthcare-industry-spends-30b-on-marketing-most-of-it-goes-to-doctors/. Accessed Jan. 17, 2019.

9 Ricardo Alonso-Zaldivar. Associated Press. Jan. 10, 2019. “Liberals dare Trump to back their bills lowering drug prices.” https://www.apnews.com/9d32fcda0f5944af9165306f6954cab3. Accessed Jan. 17, 2019.