The Variable Cost of Pharmaceuticals


If only one thing is certain about pharmaceuticals in the 21st century, it is the fact that you can never know what the cost of your prescription drugs might be in the near future. Recent events within the pharmaceutical industry, specifically high-profile incidents involving sky-rocketing prices, have shown us that the cost of pharmaceuticals is highly volatile. What is causing the fluctuation, and why are some manufacturers unapologetic in the face of massive public backlash?

The Latest Development

Americans have complained about the high cost of prescription drugs for years, but it was the recent overnight spike of a drug that has been in use for 62 years now. The New York Times has all the details, but to sum up what occurred, the price of a drug known as Daraprim shot up overnight in early September from $13.50/pill to $750/pill. The drug is used to treat a life-threatening parasitic infection, and is often prescribed to people with HIV. Pharmaceutical manufacturer Turing Pharmaceuticals acquired the rights to the drug in August 2015, and wasted little time hiking the price of each pill, and along with it the annual healthcare costs for thousands of people.

The question that arose in many conversations in political and social circles became, “what’s behind this price increase?” More importantly, many began to wonder if this was a new norm in the pharmaceutical industry.

Shocking, but Not New

Turing Pharmaceuticals’ shocking price increase of Daraprim was an astonishing 55-fold increase for the average pill, but it is far from the first time this has occurred. In fact, this isn’t even the first time that Daraprim’s price has gone up after acquisition by another company. It is a relatively common practice for manufacturer’s to secure the rights to a drug, and then increase the price overnight. Daraprim had previously been purchased in 2010, with a price hike following quickly on the heels of that acquisition.

In fact, the Huffington Post points out that a similar drug to Daraprim went through this same process just two years ago. Albendazole is another antiparasitic drug that was purchased by Amedra Pharmaceuticals in 2010. Just three years later in 2013, the average daily dose of Albendazole went from $5.92 to $119.58.

Less a Pharmaceutical Tactic, More a Business Strategy

Pharmaceutical companies aren’t doing anything particularly radical in purchasing a generic drug or little-known brand of pharmaceutical and drastically raising the price. This is merely business strategy at its finest in a capitalistic economy. Business acquisitions and mergers are largely to blame for the huge price increases that certain drugs have seen in the 21st century.

For example, the number of pharmaceutical companies manufacturing digoxin dropped from eight in 2002 to just three in 2013. Over that same period of time, the drug’s cost increased more than 600%. Decreased competition in the marketplace is a driving force for pricing in various sectors of the economy, making spikes in drug costs far from atypical on the whole.

Impact on Healthcare and Pharmaceuticals

The impact on the healthcare environment is clear. When prices suddenly skyrocket, the cost of healthcare can jump immensely. The rise of Albendazole referenced above resulted in annual healthcare costs for users jumping into the thousands, and it strains the health system as a whole. In the wake of Daraprim’s massive jump, hospitals quit stocking the drug because of the cost.

As for the pharmaceutical industry, rising costs through consolidation cut down on the number of companies competing for consumer dollars. This in turn results in mergers as one company buys out another or procures the rights to a particular drug’s manufacture. The end result is often pain in the pocketbook for those most in need of a drug’s beneficial impact.

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