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What makes prescriptions cost so much?

Jenni Miller By | Updated on May 5, 2020
Medically reviewed by Ramzi Yacoub, Pharm.D., SingleCare Chief Pharmacy Officer

Prescription drugs are an integral part of healthcare; they help manage symptoms, treat illnesses, and save lives. However, the high cost of prescription drugs can take a big chunk out of the monthly budget for most people in the U.S. It can even hurt those who are able to afford good health insurance plans—not to mention people who opt for Medicare. Those $30 copays add up. When you factor in can’t-miss treatments that are only available as brand-name drugs, it’s no wonder that customers are going into debt to get their meds. 

The bad news is that it doesn’t look like healthcare spending will drop any time soon. The price of more than 3,400 prescription drugs skyrocketed in 2019, with an average increase of 10.5%. That average includes 41 drugs with high prices that shot up more than 100%, including Prozac, which went up 879%. Unfortunately, this means some patients are struggling to pay for much-needed prescriptions or, in worse cases, skipping them altogether

And even without the yearly price hikes, some prescription drugs are jaw-droppingly expensive. Take, for example, the Humira pen, which is used to treat a bevy of autoimmune conditions such as arthritis, Crohn’s Disease, and ulcerative colitis. It costs nearly $7,000 for a 28-day supply, making it one of the most expensive drugs available in the United States in 2019. However, the most stunning is Afinitor, a cancer drug that costs around $19,000 for a 28-day supply if your insurance won’t cover it. And those are just the brand-name drugs with no generics available. The generic version of Copaxone, which is used to treat multiple sclerosis, is nearly $6,300 for a 30-day supply.

Despite how drug costs affect our health on a day-to-day basis, few of us are aware of exactly how the pharmaceutical market works, what drives up already high drug prices, and how to save money on prescription costs. Let’s take a look at why drugs cost so much, how your choices matter, and how SingleCare can help.

Why are prescription drugs so expensive? 

1. Lack of price regulation

At a basic level, drug manufacturers call the shots when it comes to how much American patients pay for their prescriptions. While the Food and Drug Administration regulates how new drugs are tested, marketed, and released on the market, they don’t have any price control over medications. Meaning, customers are subject to the whims of what many call “Big Pharma.” 

In May 2019, the Trump administration finalized a new requirement for manufacturers to include the list price of drugs in their TV advertisements. This could enhance transparency by helping customers compare the list price of drugs (set by manufacturers) to their copay (set by insurers). One 2013 study found that out-of-pocket costs with insurance exceeded the cash price of the drug without insurance 23% of the time.

2. Drug exclusivity protection

When a new drug hits the market, it’s immediately placed under patent and drug exclusivity protection, with patents currently lasting 20 years. Drug exclusivity means that other pharmaceutical companies can’t compete by developing generic drugs with similar effects.

In theory, patenting and drug exclusivity inspire further research and development of better and more effective treatments for debilitating diseases like cancer and can even aid the current race to find effective treatments and a vaccine for the coronavirus. They ostensibly protect hard-earned research from being stolen by a competitor. However, this often leaves payers stuck with staggeringly high drug prices. One of the biggest problems, according to Peter B. Bach, physician and director of the Center for Health Policy and Outcomes at the Memorial Sloan Kettering Cancer Center, is that the law essentially forces insurers to include each and every expensive drug in their policies, regardless of their efficacy or price. 

3. Price hikes in the supply chain

Meanwhile, insurance companies are putting the squeeze on consumers with increasing monthly premiums and health plans that don’t always cover brand-name drugs. And then there are the pharmacy benefit managers (PBMs) who manage price negotiations  with pharmacies, insurance companies, drug companies, and even your employers to come up with a list of approved drugs that will be covered under your plan. It’s a twisty-turny supply chain that, in the end, affects your bottom line.

4. High administrative costs

The United States has the unfortunate bragging rights that its citizens pay several times more for healthcare than people in other high-income countries, like Sweden, France, the U.K., and Canada, among others. The Journal of the American Medical Association reported, “Contrary to some explanations for high spending, social spending and health care utilization in the United States did not differ substantially from other high-income nations. Prices of labor and goods, including pharmaceuticals and devices, and administrative costs appeared to be the main drivers of the differences in spending.”

5. Limited market competition

By contrast, there are fewer insurance companies in Europe and Canada, which gives them leverage over the pharmaceutical industry. They’re free to reject high-priced drugs, so pharmaceutical companies must actually compete in a free market. As a result, drug prices are more reasonable overall, and despite what the pharmaceutical industry claims, lower prices don’t seem to affect research and drug development. 

Generic prescription drug alternatives

Despite all that bad news, don’t despair—you have more options than it seems to get the prescriptions you need at a price point that won’t make you (more) sick. You can choose generic drugs when they’re available; they can cost up to 85% less on average, and they offer the same benefits of a brand-name drug. You might be skeptical of such a drastic price drop, but there’s a simple explanation, and it has to do with FDA regulations (or the lack thereof). 

After a patent and/or drug exclusivity for a particular drug expires, other pharmaceutical companies are free to develop their own version of the treatment, which means drug pricing must be more competitive. Additionally, the FDA does regulate how generic drugs are manufactured, packaged, and tested, so even though your prescription might look slightly different, it will work the same way.

For example, the ADHD medication Ritalin can also be purchased under the generic name methylphenidate, and often at a cheaper price. Metformin, which is used to treat Type 2 diabetes and polycystic ovary syndrome, is available under the brand names Glucophage, Glumetza, and Riomet; you can get generic glucophage for $30 to $40 with a SingleCare coupon, while Glumetza is $1,000, depending on where you live. And, of course, the cost of insulin is astronomical. In 2019, drug manufacturer Eli Lilly and Company released Insulin Lispro, a cheaper, generic version of Humalog.

According to the Congressional Budget Office, generic drugs save consumers on average $8 to $10 billion a year. So the next time your doctor writes you a prescription, make sure to ask whether it’s a new medication, and whether there’s a generic version available.

Prescription savings tools: Rebates, pharmacists, and drug cards

Going generic can help you save on prescription costs. There are also a variety of other, more alternative methods to find the best drug prices. All you need is a little know-how and perseverance, and you can at least make a dent in how much you’re spending on prescriptions.

The biggest surprise is that paying for prescriptions using your insurance might not be saving you money at all. A traditional $10 copay on generic drugs sounds reasonable at first, but those same drugs might only cost you around $3 if you pay out-of-pocket without insurance. 

And whether or not you have insurance, you should always check the cost of your prescription against a pharmacy savings card, like SingleCare. You could save up to 80% on your prescription medication—and there’s no hidden fees or catches. 

You can also ask your pharmacist about patient assistance programs, which many pharmaceutical companies offer for prescriptions and even vaccines, depending on various qualifiers. 

Another great way to save money is to compare Rx drug prices at different pharmacies—some will charge less for particular medications, and others may offer lower dispensing fees. Head to singlecare.com and plug in your medication, then select your zip code to compare the price of drugs at local chains and big-box stores.

People in the U.S. feel like they don’t have a choice when it comes to filling their prescriptions, but SingleCare provides a more transparent and affordable way to get the medications you need.