What Drives Drug Prices in the US?

Cleaning up one emails, I found on article on which I had not commented that appeared to little fanfare after Thanksgiving.

Americans saw increases in cost on more than 250 drugs at the beginning of 2020.(4) Why?

The explanation is to be found in a report from late November that appeared in “Healthcare Finance” and focused on medications used to treat patients with multiple sclerosis. The focus on these drugs is due to price increases that are high even by drug industry standards.

U.S. Medicare patients with multiple sclerosis often pay, on average, nearly $7,000 out of pocket to treat their condition each year. And even though drug companies have provided no new treatment breakthroughs, the price of these disease-modifying medications has been rising by 10 to 15% each year for the past decade.(1)

Researchers from the Oregon Health and Sciences University interviewed executives from the drug manufacturers and were told that pricing decisions were largely independent of research and development costs. Instead, the key driver of price is maximizing profit for the manufacturers.

The researchers said the U.S. healthcare system appears to be unique in its capacity to absorb continual price increases. Executives said that in the world’s second-biggest market, Europe, the price of a drug is typically highest when it launches and then declines over time.The opposite appears to be the case in the U.S.(1)

In fact, the US subsidizes prices for users of the same drugs in other countries. They pay less because US consumers or Medicare pay more.

Unfortunately, pharma companies are also top donors to Congressional re-election campaigns (2), meaning that there is no appetite in Congress to address drug prices. Thirty senators, including Mitch McConnell, have split $845,000 in donations from the drug industry in 2019.(3) The top recipient in 2019 was Senator Chris Coons (D, Delaware), receiving $103,000.


  1. https://www.healthcarefinancenews.com/node/139481
  2. https://khn.org/news/campaign/
  3. https://www.usatoday.com/story/news/politics/2019/08/26/pharma-industry-ups-donations-senate-republicans-mcconnell/2116231001/
  4. https://www.reuters.com/article/us-usa-healthcare-drugpricing/more-drugmakers-hike-u-s-prices-as-new-year-begins-idUSKBN1Z01X9

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