We have all heard about pharma bro AKA Martin Shkreli who hiked the price of Daraprim over 5,500%, but what if I told you this is common practice (minus the severity of the hike)? Obviously daraprim got more media attention because it is widely-used and became too expensive where it was very cheap before. We all heard why he hiked the price, so what is the reasoning behind pricing hikes in regards to the industry as a whole?
Decrease in competition
Usually an increase in competition leads to lower prices as the two groups compete for your business. So what happens when your competition goes out of the market? Congratulations, you get to control the price of whatever you make. Digoxin, for instance, was made by eight different manufacturers in 2002. By 2013, this number fell to only three. Cost went up 637%. You need the drug, you need to pay the price.
Recuperate lost profits
Surprisingly, pharmaceutical companies actually can lose money! At least their stocks can take a tumble and that doesn’t look good on shareholders or on the bottom line. Some justification for this is that certain medications are either barely turning a profit or breaking even at best. Considering most companies will not say the cost of production and other expenses, it is somewhat hard to tell whether this is valid or not.
You have to pay people to research a drug to make it more cost-effective, more easily produced, or to reduce side effects among other things. No one is going to do that for free, so this cost money. There is also clinical trials it must go through before it hits the market. All of these costs will add up. This is what the price hike of daraprim was supposed to be because. Valid reason, so long as you don’t consistently use it. Or pull a stupid and do a dramatic rise overnight.
So what a few prices got hiked to absurd levels? What about everything else?
It went up too. Not all of them, but a good portion. The companies don’t care considering they do it on an almost consistent basis. It’s not enough to raise an alarm, but enough to have an impact on you and on their bottom line. A Reuters report saw that the top 10 drugs in terms of sales went up in price 44% on average while the times these drugs were prescribed actually dropped.
One thing that a person does have to remember is that these prices are not the direct to patient cost. Based on what medical coverage you have, the cost of these medicines can be reduced or have no cost to patient. However, raising the price of medicine for the medical insurer will result in more cost put over to the patient.