It’s no secret that drug costs have been steadily increasing year by year. From 2014 to 2015, overall drug spending increased 12 percent, the highest rate of increase in more than a decade. It’s not just specialty drugs increasing in price: Older generic drugs are becoming more expensive and scarce. At least 315 generics have doubled in price since 2012, many of which lack market competition.
Drugs have been carrying alarming costs, and health plans are increasingly asking people to shoulder a share of the price. These costs are well on their way to making healthcare unaffordable again.
Where are the savings we thought were coming? There are no clear-cut answers. But to start, market consolidation, informal collusion and price fixing each contribute to rising drug prices. Industry consolidation has safeguarded large manufacturers’ power over the market and price collusion within the industry is not unheard of.
Despite this, many older therapies are rising in price because manufacturers have dropped out due to low profitability. They move on to pursue newer generics that are in higher demand. For example, between 2002 and 2013, the number of manufacturers making oral digoxin, a heart drug, dropped from eight to three. Consequently, the cost soared by 637 percent.
That’s just one example. The spike in generic drug prices affects families across the nation. In cases like these, other manufacturers can enter the market, but it can take years to receive Food and Drug Administration approval. Until then, prices remain high and rising.
Likewise, when firms stop production to upgrade equipment, the result is often shortages and higher prices. Even with multiple manufacturers of one drug, there may only be one or two suppliers of the raw materials used to produce the final product. In essence, drug shortages, regulatory hurdles, supply disruptions and consolidations within the drug industry each play undeniable roles in hiking up drug prices.
The rising price of medicines is steadily becoming unsustainable. Effective drug therapies are becoming out of reach for Americans because pharmaceutical companies are increasing their price tag. There is a common misconception that generics can vary in effectiveness from their brand name counterparts.
This is a telling myth. Generics are able to be sold for lower prices since they are not required to repeat costly clinical trials or pay for advertising and promotion, but their quality is comparable. Remember the extent of their worth and value, as they have been a key element in cutting healthcare costs and making medicine accessible. The time to act is now in order to enhance competition and hold prices in check.
For competition to flourish, we need to implement more concentrated regulatory processes and expedited programs to get generics approved. We need the FDA to clear the application backlog and decrease processing delays. This is already starting, with more than 700 generic drugs approved in 2015, the highest figure seen yet. However, the backlog is still in the thousands. There is much room for improvement.
There’s also a need to curb biologic drug costs, the fastest growing element of pharmaceutical costs. This could be done by reducing the exclusivity period to enhance competition, encourage innovation and speed affordable generics to the market. Still, this would need to be done with caution since the exclusivity period is when companies recoup their research and development investments. Perhaps if the science of biologic production were more transparent, barriers to entry for biosimilars may diminish for those which have come off patent.
Lastly, the drug industry needs to be held accountable. A widespread practice in the industry is raising drug prices in the year or two prior to patent expiration, as well as paying competitors to keep lower-priced generics off the market. There are also times when manufacturers have charged wildly different prices for essentially the same generic.
The government should restrict these practices, help to increase price transparency and fine or increase rebates for companies raising prices unjustifiably.
Julia Michaloski is a masters candidate at George Washington University. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
