Why Are Medicine Prices So High?
5 MIN READ
USA Pricing for popular weight loss drugs: Ozempic, Rybelsus, Wegovy, Mounjaro compared to the rest of the world. USA pricing for Ozempic at 936$ whereas in other countries medication is no more than 200$ Reference: https://www.kff.org/health-costs/press-release/3-charts-about-drug-prices-in-the-united-states/
For far too long, medical companies have had the power to raise the prices of medical drugs way over the natural rates of inflation, directly impacting the wallet and health of millions around the world.
But why?
It all comes down to the for-profit nature of the healthcare system. Drug manufacturers, pharmacy benefit managers (PBMs), and insurance companies all play an important role in determining prices, and there’s little regulation to prevent costs from spiraling out of control.
Let’s break it down.
The Main Characters in Drug Pricing:
Drug Manufacturers:
The company that manufactures the drug, gets to decide the initial price of the drug once it hits the market. The strategy these companies use is based on the expected profit the company expects the drug to generate in sales. Think about it, that is crazy!! If the company is aiming to make a couple of millions with a single drug, they have the greenlight to price it as high as they want. Basically this method reinforces the fact that prices are set with profit in mind, not patient affordability.
Pharmacy Benefit Managers (PBMs):
these managers have a ‘middleman’ function. They are the ones responsible for negotiating the prices between insurance companies and manufacturing companies. However, more often than not, these managers are biased to keep the prices high and insurance companies in check. PBMs have the power to decide which drugs are included on insurance formularies (the list of covered medications) which is a lot of power!!
Insurance Companies:
The aspect that affects the client the most when it comes to drug pricing is the coverage of their insurance company. Basically, the drugs covered by your insurance play a big role in how much you pay. If a drug is on your plan’s formulary, it’s more affordable. If it’s not, you’re left to pay full price (think about that!!).
The Sad Part:
The higher the demand for a drug (especially life-saving ones), the more insurers can drive up prices through their coverage decisions. When there is little flexibility on your behalf, insurance companies tend to exploit the prices to make sure to make the most out of the drug sale.
Why Do Prices Keep Rising?
The system is often compared to a car with all engines and no brakes.
Prices go up because the demand for medications is high, and in many areas there is little competition. Since people need these drugs, they have no choice but to pay, making it easier for manufacturers and PBMs to raise prices without much pushback. Given that insurance companies have control over which drugs are covered, they too influence pricing, sometimes increasing demand and pushing prices even higher.
Profit over client affordability seems to be a common theme…
The Bottom Line
In 2023, the pharmaceutical industry was worth a solid $602.19 billion dollars, with that number continuing to rise in 2024. Understanding the way that the drugs are priced is crucial to see how the industry progresses. The combination of manufacturers setting prices with little regulation, PBMs negotiating prices with unclear benefits for consumers, and insurance companies controlling drug access makes a complicated system for patients to live and deal with.
