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Why prescription drug prices are rising so sharply

Drugs Money Pills 2 IMG_9751_2Nearly one-third of Americans polled by Consumer Reports said they had experienced a drug price hike in the past year, with some reporting not taking medications as prescribed, postponing medical tests and doctor’s visits, and spending less on groceries.

In an investigation into prescription drug costs, Consumer Reports identifies five key reasons behind the rampant rise in costs:

1. Drug companies can charge whatever they want.

For commercial and Medicare plans, there’s no government body – including the Federal Trade Commission, Food and Drug Administration, and Centers for Medicare and Medicaid Services – that has rules or laws that dictate or restrict the price a pharmaceutical company can set for a drug. And in most cases, there’s nothing that restricts how much a company can raise that price. Major pharmaceutical firms made an additional $25.6 billion in 2015 by raising prices on their brand name drugs, according to IMS Health, a group that tracks drug sales and marketing. The firm estimates that figure to grow to $155 billion over the next five years.

2. Insurance companies are also charging you more.

Insurance companies are supposed to protect people from unexpected high healthcare costs. But more and more people are experiencing higher deductibles; increasing monthly premiums; bigger co-pays from drugs put on more expensive “tiers”; or by other drugs being paid for with “co-insurance,” where a consumer pays a percentage of the medication’s price, instead of a flat co-pay.

Ten years ago, less than 10 percent of employees with health insurance were enrolled in a plan with a high deductible of $1,000 or more. Today, almost half of Americans have those plans, according to the Kaiser Family Foundation.

3. Old drugs are reformulated as costly new drugs.

Reinventing old medications, a tactic known as “evergreening,” can amount to greater profits because the government grants a new patent every time a drug company creates a “new” pill. The tweak could involve combining two older drugs into one pill or developing an extended release version. A new patent is worth up to 20 years of total exclusivity. An example of evergreening that affects a large number of consumers is the diabetes drug insulin, which is almost 100 years old with no generic available in the United States.

4. Generic drug shortages can trigger massive price increases.

The ballooning price hike for the generic hydroxychloroquine, used to treat arthritis, shows how a shortage can impact prices. For Marlene Condon, a nature writer from Virginia profiled in Consumer Reports’ investigation, the drug that was once available for $32 for a three-month supply skyrocketed in price to $500. Using discount drug coupons, Condon has managed to buy the drug for less than $300, but she still struggles to afford her medication. Consumer Reports explains that Condon’s experience isn’t an isolated event. Overall, prices of generics increased by almost 9 percent between November 2013 and November 2014.

5. Specialty drugs are costing all of us.

The rise of super-expensive, “specialty” drugs is a new threat. Examples include the hepatitis C medications Solvadi, $84,000, and Harvoni, up to $95,000, which are driving up overall costs for the healthcare system. A report by the Congressional Research Service shows very expensive drugs that account for less than 1 percent of prescriptions in the U.S., but represent about one-third of total drug spending by consumers, employers and government, and will likely make up a bigger proportion of overall spending. Also worrisome: More than half of the 56 medications approved by the FDA in 2015 were specialty drugs. One thing that’s clear: Consumers’ costs will rise. Medicare Part D prescription plans require patients to pay one-third or more of the costs of specialty drugs. Consumer advocates and others worry that consumers will likely see higher insurance premiums and deductibles.

Although much of drug pricing is out of consumers’ hands, consider these tips to find the best deals at the pharmacy:

  • Talk to your doctor about the cost of the drug he or she is prescribing. Ask about generics, which can cost up to 90 percent less. If your insurance drops or reduces coverage of a drug, your doctor can help by appealing to your insurance company for an exception.
  • Shop around and negotiate. Consumer Reports’ secret shoppers have found that retail prices can vary widely, even within the same zip code.
  • Check online with caution. If you pay out of pocket, check GoodRx. See Consumer Reports’ advice about using low-cost online pharmacies at
  • Choose a plan that covers the medications you need. Compare plans during your open-enrollment period because coverage may change year to year.
Copyright 2016, Rita R. Robison, Consumer Specialist


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