Pharmaceutical Industry Insights

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Pharmaceutical Industry Insights

Reasons for the Rising Cost of Drugs and Medication

From pharmaceutical companies' perspectives, high list prices and rebates, and high launch prices drive drugs and medication prices upwards. On the other hand, experts and researchers believe high drug prices also result from a lack of competition for brand-drugs and a lack of regulations for drug prices.


  • According to HHS estimates, drug prices will continue to rise in the next decade, at a rate of 6.3% per year.
  • During the first six months of 2019, 3,400 drugs hiked their prices compared to 2,900 drug price increases in the previous year.
  • In a Kaiser Family Foundation study, 79% of people said that the cost of prescription drugs is unreasonable, and a third of patients said that they skip prescription medicine because of the cost.
  • According to findings of a report as highlighted by the Association of Accessible Medicines (AAM), "the average annual price of specialty drugs has tripled over the last ten years from nearly $18,000 to more than $52,000 today."

Pharmaceutical Companies’ Perspective.

  • High List Prices & Rebates: From the pharmaceutical companies’ perspective, the annual price increases are caused by additional payments known as ‘’rebates’ that are made to middlemen in the industry, such as health insurers and benefit managers.
  • In drug purchase contracts, the rebates are now standard practice. Most benefits managers choose to cover those drugs that have higher ‘list prices’ (resultant prices that factor in payments made to middlemen in the pharmaceutical industry), which then lead to bigger rebate payments.
  • Pharmacy benefits managers (PBMs) are at the center of the problem. The pharmaceutical industry is structured in such a way that PBMs help keep prices high in the market; they are paid by drug companies to ensure that low-priced drugs are left out of the formulary.
  • High Launch Prices: New brand biologics’ high launch prices are also a significant cause in the rise of drugs and medications.
  • Drug companies claim that they spend higher proportions of their capital on research and development of new medicines.
  • In their defense, pharmaceutical companies argue that the high cost of developing such medications is responsible for the high prices. They agree that a reform of the entire payment system could make it easy to control drug costs.

Industry Expert/Market Research & Surveys’ Perspective

  • Lack of Competition: brand drugs that have no competition tend to effect year-over-year price increases on such medications.
  • Patients are feeling the heat of higher me costs, mainly because brand-name drugs now account for 77% of all spending on prescription drugs.
  • In attempts to incur fewer expenses on medication and drugs, patients are turning to FDA-approved generic and biosimilar alternatives whose prices can be up to 80-85% less than the brand drugs.
  • However, findings from a study conducted by researchers from the Scripps Research Translational Institute revealed that brand-name drugs prices are not significantly impacted by the availability of generic versions or bio-similar products.
  • Lack of Regulatory Framework: According to the Consumer Report, one factor that is orchestrating the rise in prices of prescription drugs is the fact that no federal law or regulation exists to keep drug prices in check.
  • The current Medicare laws give no room for negotiation of drug prices, and drug companies are taking advantage to demand any price points they want. Patients remain at their mercy.