Who Is Responsible for Rising Drug Costs?

Americans’ prescription drug bills are rising. Most drugs are affordable, but prices for a few drugs exceed the average mortgage payment. They can be especially costly when there are only one, two or three patented drugs in a given therapeutic class. Drug makers are free to establish whatever price they believe the market will bear and, depending on the number of competitors, they could have significant pricing power.

The Case of the EpiPen. Consider the recent example of Mylan’s EpiPen, which increased about 450 percent in price over a 10-year period. It seems improbable that a 40-year old product would cost more than $300 apiece. The EpiPen administers a dose of generic epinephrine worth less than $1. Though the current EpiPen auto-injector design is under patent protection, generic auto-injectors for diabetics sell for $30 to $40 retail. Simple logic suggests an epinephrine auto-injector should cost no more than $31 to $41. Yet, EpiPens are only sold in twin-packs at a price of just over $600 a pair. This kind of pricing power is mostly due to U.S. Food and Drug Administration (FDA) regulations that make it difficult and costly to bring competing products to market. For example, the maker of generic auto-injectors cannot sell syringes preloaded with epinephrine without submitting a new drug application to the FDA and conducting costly clinical trials.

Generic Drugs. Most of the drugs Americans take are generic drugs. Generics are generally inexpensive because they are no longer protected by patents and various manufacturers compete on price. Yet, drugs whose patents have not yet expired can sometimes be very expensive — especially recently approved drugs and biologics derived from living material. Consider:

  • Generic prescriptions account for about 88 percent of prescriptions filled, but only 28 percent of drug spending.
  • By contrast, traditional brand drugs constitute 11 percent of drug scripts and 39 percent of drug expenditures.
  • The remaining 1 percent of prescriptions are for specialty drugs and account for more than one-third of drug spending.

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