Why Are Prescription Drugs So Expensive?

This is the key point from James Surowiecki‘s recent article in The New Yorker:

“And, across the board, drug prices rise much faster than inflation. The reason for this is that prices for brand-name, patented drugs aren’t really set in a free market. The people taking the drugs aren’t paying most of the cost, which makes them less price-sensitive, and the bargaining power of those who do foot the bill is limited. Insurers have to cover drugs that work well; the economists Darius Lakdawalla and Wesley Yin recently found that even big insurers had “virtually zero” ability to drive a hard bargain when it comes to drugs with no real equivalents. And the biggest buyer in the drug market—the federal government—is prohibited from bargaining for lower prices for Medicare, and from refusing to pay for drugs on the basis of cost. In short, if you invent a drug that doctors think is necessary, you have enormous leeway to charge what you will.”

One of the major problems in the substance abuse treatment field is that many insurance companies won’t pay for opiate treatment drugs like Suboxone or Vivitrol. Even with insurance, these drugs often cost close to a thousand dollars a month. More grist for the mill that drug treatment has become a modern civil rights issue.

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