Why are Drug Prices Increasing?

The health care industry is progressing like never before. There are many innovative solutions that are being developed both in terms of drug research, time-saving apps, and new medical products. As you can imagine, the price of good healthcare in the near future is going to be anything but inexpensive.

There has been a continual rise in prices of various medicines, especially generic drugs that are bought by patients on a regular basis. Glass Box Analytics, a consultancy, and analytics company, studied and followed the progress of 4,421 generic drug groups from Nov 2013 to Nov 2014. The company found that out of this large group, 222 drug groups experienced more than a 100 percent increase in price.

One well-known example is the price of the drug tetracycline, which is mainly used for treating different kinds of bacterial infections. In 2013, the price for this drug was $0.0345 per tablet. However, in the following year, the price increased to $2.3632 per tablet.

Generally, the public is outraged when a sudden price rise take place. Often drug companies are accused of hiking prices just to bring in a larger profit, and not thinking of the public’s requirements. While I agree that some companies have indeed tried unscrupulous methods, one bad egg does not mean that the whole basket is rotten.



Reasons behind the Hike in Drug Prices

There are many legitimate reasons behind the continual rise in drug prices. The most important reasons are:

• Merging of Generic Drug Companies: The logic behind this reason is simple. When you have multiple companies providing the same type of drug to cure a certain ailment, there is a huge amount of competition. Higher the competition, lower the price. With generic drug companies consolidating to increase their research and manufacturing capabilities, the competition is far less. Hence, the rise in prices.


• Shortage of Raw Materials: Every drug contains one primary element or compound, which is responsible for the drug’s performance. These days, finding a producer who can provide quality raw materials to create generic drugs is difficult. To satiate the demand, manufacturers end up importing raw materials from other countries, which is by no means inexpensive. This leads to a rise in the price of a drug.


• Problems in Manufacturing Process: If there is a shortage of raw materials, it leads to delays in the production schedule. When a new drug is being created, changes in the drug formulation process can also delay production. Other known factors include obsolete equipment, and limited production capabilities. All these factors will lead to the unavailability of a drug, which will lead to a rise in its price.


• Supply and Demand Problems: This point is a simple case of pharmaceutical economics. The demand for a particular drug can increase due to a growing epidemic, an extremely positive response to a drug, changes in therapeutic guidelines related to a medication, etc. Such issues can lead to a rise in the price of that product.


• Regulatory Issues: This is one area that is not well-known amongst patients. In North America 2014, Congress passed the Medicaid Generic Drug Price Fairness Act. The aim of the act was to ensure that drug manufacturers do not extend the price of a drug higher than the Consumer Price Index (CPI) during a financial quarter. If a manufacturer does this, then he is expected to pay a high penalty sum.

What has been argued by many experts is that, with the immense number of generic drugs in the market, there are multiple prices to consider. Also, generic drug manufacturers are exempt from the paying any inflation penalties. Due to this, the Act may not be able to help bring down the prices of generic drugs.

Is There a Solution?

While there is no complete solution to this problem as of now, efforts are being made to ensure that drug companies provide medicines at reasonable prices. Companies are taking the effort to collate data about drug price information. They are also analyzing pricing changes, so that they can make accurate price changes. Manufacturers cannot risk hiking the prices as they will have to pay a penalty to the Government. With such efforts underway, we can hope that the drug price problem will reach a consensus in the near future.