Supply, Demand and Regulations: Prices of Prescription Drugs are Skyrocketing

The price of prescription drugs is skyrocketing. That’s the product of lack of government controls on prices (unlike most countries), supply, and demand. With the population getting older there are more and more cancer patients using more and more pharmaceuticals. Another factor creating demand is simply how drugs are packaged.

The American Association of Retired People (AARP) recently issued a study showing that the price of prescription drugs has doubled over the past seven years, according to CNBC. AARP states its research shows price increases coming one or more times a year are making prescription medicines increasingly unaffordable.

That’s especially true for those, like many cancer patients, who need to use multiple drugs or need long-term medications. The financial burden becomes much worse if the patient’s insurance doesn’t cover much of prescription costs or if the patient is uninsured. In August a poll released by the Kaiser Family Foundation found 24% of Americans have difficulty paying for their medication. For those in poor health like cancer patients that increases to 43%.

AARP’s research found the average retail price of 622 prescription medicines widely used by seniors went from $5,571 in 2006 to $11,341 in 2013. Those medications are a mix of generics, brand name drugs and high-priced “specialty drugs” for complex conditions. Prices increased 9.4% just in 2013 alone, six times the overall inflation rate for that year.

Specialty drugs for cancer, hepatitis C, and rare diseases drove the price increases. The average widely used specialty drug cost $53,384 in 2013, 18 times the average annual cost for a brand name drug ($2,960) and 189 times higher than the average price for a generic drug ($283).

Rodney Warner
Rodney Warner

Generic drugs traditionally have helped keep prices more reasonable. Generics are the same or equivalent of brand name drugs that lost their patent protection so they could be made by any drug maker. But those low prices have resulted in fewer companies making them, cutting supply, resulting in higher prices.

Another factor driving demand is how drugs are packaged. Marketplace reports that patients, insurance companies and the federal government will spend an estimated $3 billion this year on cancer drugs that are thrown away. That’s the conclusion of a study published in the medical journal BMJ. While that group is bearing this cost, drug makers, hospitals, and doctors are reaping the financial benefits of how drugs are packaged.

Marketplace uses as an example a 100 mg vial of Keytruda which normally costs just over $5000. The average patient’s dose is 150 mg so two vials are needed. Only half of the second vial is used and the rest, valued at about $2500, is thrown away. The drug’s manufacturer, Merck, only sells the drug in 100 mg vials in the U.S.

If the vials were 50mg Merck would make about 25% less for every time the average patient gets treated. Study authors estimate Merck could be paid more than $1 billion dollars over the next five years for Keytruda that was never used. Researchers stated drug companies are taking advantage of ambiguous and sometime conflicting regulations but there’s no reason this drug couldn’t be sold in 50 mg vials because that’s how it’s sold in Europe.

Drug companies are free to price drugs at whatever level they see fit. If prices continue to rise, fewer and fewer people will use them. As much as we need more effective cancer treatments do we want only those with the most money and the best insurance to actually use them?

Disclaimer: Views expressed are those of the author or other attributed individual and do not necessarily represent the official opinion of the OncoLink Staff, University of Pennsylvania Health System (Penn Medicine), or the University of Pennsylvania, unless explicitly stated with the authority to do so.

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