Distortions in US drug Pricing and Profits

Drugs are price elastic, and Federal reimbursement under Medicare distorts that elasticity to the benefit of drug companies.

in plain English: as drug prices rise, people stop using them. But instead of depriving drug companies of funding through lost customers, Federal reimbursement under Medicare increases for these same drugs.

In  research from UC San Diego, the ten drugs receiving the highest Medicare reimbursement in 2015 were

  1. Lepidasvir/Sofosbuvir (hepatitis C) — brand name Harvoni
  2. Insulin glargine (diabetes)
  3. Rosuvastatin calcium (cardiovascular disease) — brand name Crestor
  4. Fluticasone/Salmeterol (asthma and chronic obstructive pulmonary disease)
  5. Tiotropium bromide (chronic obstructive pulmonary disease)
  6. Sitagliptin phosphate (diabetes)
  7. Lenalidomide (blood cancers)
  8. Esomeprazole magnesium (dyspepsia, gastroesophageal reflux) — brand name Nexium
  9. Pregabalin (epilepsy, neuropathic pain, generalized anxiety disorder)
  10. Adalimumab (arthritis, Crohn’s disease)

The paradox: Federal reimbursements for these medications increased 32% between 2011 and 2015, while the number of patients using them declined by 32%.

In plain English, the Federal government is enabling price increases on drugs that otherwise would be under pressure from declining  demand.

Right now, Congress is granting drug companies the right to raise prices and milk profits from drugs in excess of what other manufacturers get. The Federal government either has to change the rules to allow competition back into drug pricing, or put limits on pricing and price increases.

Unfortunately, as long as Congress is taking money from drug companies, that’s unlikely to happen.

Perhaps its time for a wholesale change in the membership of Congress.


  1. Jonathan H. Watanabe, Diane L. Chau, Jan D. Hirsch. Federal and Individual Spending on the 10 Costliest Medications in Medicare Part D from 2011 to 2015. Journal of the American Geriatrics Society, 2018; DOI: 10.1111/jgs.15443
  2. University of California – San Diego. “The rising price of Medicare Part D’s 10 most costly medications: Costs soar even as fewer patients are actually using the drugs.” ScienceDaily. ScienceDaily, 5 July 2018. <www.sciencedaily.com/releases/2018/07/180705143901.htm>.

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