Drug Prices on the Rise

By Susan Bruce

Earlier in the year, as part of the health insurance reform bill, the White House agreed to a deal with the pharmaceutical companies. According to a NY Times story in August:

Pressed by industry lobbyists, White House officials on Wednesday assured drug makers that the administration stood by a behind-the-scenes deal to block any Congressional effort to extract cost savings from them beyond an agreed-upon $80 billion.

Big Pharma agreed to go along with President Obama’s health insurance reform bill, in exchange for this deal.
As it turns out, the drug companies are going to be just fine.

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.

So much for $80 billion in savings.

A Harvard health economist, Joseph P. Newhouse, said he found a similar pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years.

“They try to maximize their profits,” Mr. Newhouse said.

But drug companies say they are having to raise prices to maintain the profits necessary to invest in research and development of new drugs as the patents on many of their most popular drugs are set to expire over the next few years.

Given that research and development is heavily subsidized already by US taxpayers, it’s hard to feel sorry for Big Pharma. They’d have a lot more cash available for R&D if they stopped bombarding us with ads for Viagra, Cialis, and Levitra every ten minutes.