THE BLOG

The Skyrocketing Cost of Brand Name Prescription Drugs

06/08/2015 12:53 pm ET | Updated Jun 08, 2016

Overall, inflation has been very tame in recent years. It's one of the few advantages we get from having a somewhat stagnant economy. According to the Bureau of Labor Statistics, prices in the U.S. have only risen an average of just over 3 percent since 2012. Even most health care prices have been tamer than usual lately. But there have been some major exceptions to this trend of low inflation -- most notably, the cost of prescription medications.

There's already been a lot of coverage about the rising cost of many generic medications, but far less has been said about the prices of established brand name medications. Brand name medications have always been extremely expensive in the U.S. Lately, these prices have gotten far worse because the price of most brand-name medications have been climbing much faster than the rate of inflation or even most other health care costs in this country.

In order to take a careful look at this trend and see just how serious these price increases have been, I made a list of brand name medications that have been around at least since fall of 2012 and have no generic equivalent. I compared the average price paid by U.S. retail pharmacies for these drugs since October 2012 using the NADAC drug price database and noted the price change from October 2012 to April 2015. The result was a price comparison of 335 total preparations of more than 150 brand-name medications over 2.5 years.

What I found was a bit shocking. First, these drugs certainly aren't getting cheaper. Of the 335 medications on my list, only one went down in price (Norvir dropped about 1 percent). Of the remaining medications on my list, the average price increase over 30 months was about 40 percent. For comparison, that's more than 13 times the rate of inflation over the same period!

The price list (here) shows several other things as well. First these medications were rather expensive to begin with. After 30 months and a 40 percent average price hike they've become unaffordable to almost everyone (if they weren't unaffordable already). Second, you can see it isn't just a few drugs that have pulled the average up. If you go over the list, you'll notice a substantial increase in the price of nearly every medication. This includes popular medications like Advair and Crestor, but also includes rarely prescribed medications like Tekturna.

And these price hikes weren't restricted to the medications on the list I made either. I stuck to medications that didn't have a generic version yet in order to keep the size of my list manageable. In reality, I could find very few examples of brand name prescription medications that had not increased dramatically in price.

For example, the price of Lipitor went up 51 percent between October 2012 and April 2015 even though Lipitor has had a generic version (atorvastatin) since 2011. Strangely, generic atorvastatin actually went down in price over that same period of time. Norvasc also rose about 46 percent in price during that time even though all doses of generic Norvasc (amlodipine) have cost only about 2-3 cents a pill for several years.

So, why is this happening? Why have the prices of nearly every brand name medication been going up by so much?

One reason prices on prescription medications are going up is that there is nothing to stop them. There are absolutely no restrictions on how much a pharmaceutical company can charge for a medication in the U.S. Add to that, the fact that consumers seldom even see the actual price of most prescription medications and these prices are free to skyrocket without much limit or even anyone hearing much about it.

The other, less-obvious reason for these price increases is the fact that the pharmaceutical companies have become a little desperate. Outside of a few notable exceptions, most of the medications debuted by the pharmaceutical companies in the last 15 years haven't done very well. Since 2000 the majority of new medications released by the pharmaceutical companies have been, at best, marginally successful and, often, complete flops.

Add to this the fact that the patents have either run out or are about to run out on most of the really popular prescription drugs and the outlook appears rather bleak for the pharmaceutical industry. In reviewing the financial statements for these companies, I've found that the majority of them have had either static or declining revenue over the last several years.

How are they offsetting these losses? Raise the price of every drug without discrimination. If they can't sell as many drugs as they did in the past, they can just sell each drug for a lot more money. That should work for at least a little while. So, what we're really seeing appears to be an act of desperation from an industry that has few new ideas but no limit to what they can charge for products that some people need just to stay alive.