15 Reasons Why Prescription Drugs Are So Expensive in the US

Ree Winter, an Australian journalist now based in New Orleans, combines her love for solo travel with a sharp eye for great flight and accommodation deals. She eagerly shares her travel insights with her audience, drawing from her rich experiences. Ree holds a Master's degree in Journalism and a Bachelor of Arts in Literature and History. Her fascination with history is evident in her stint as a tour guide at historic house museums, showcasing her knowledge of architectural history. Beyond journalism and history, Ree has a unique flair for coffee culture. As a barista, she's operated a coffee van at various events and markets, showcasing her skill in coffee preparation.

You’ve likely noticed a lot of medication advertisements on TV during your favorite programs and shows. These ads usually have cheerful people enjoying different activities in the background and living their best lives. But these ads interrupt our shows and movies with their medication benefits and the potential side effects that come with the medications. You might be interested in trying one of the medications you’re advertised to, only to realize your insurance might not cover the treatment, and it could cost a lot of money from out of your pocket.

The cost of prescription drugs in the United States has long been a topic of debate and concern among everyday people and a lot of people in the medical industry. Despite efforts to fix the issues, prescription drug prices in the U.S. remain significantly higher than those in other countries. But why are prescription drugs so expensive in the U.S.?

1. Research and Development Expenses

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Pharmaceutical companies emphasize the hefty costs of researching and developing new drugs, but this is an important step in order to produce the medications we need. Investopedia reports billions of dollars are spent on research and development each year for these new drugs.

According to Investopedia, most companies spend about 25% of their revenue on research and development. These expenses were inflamed during COVID-19, causing companies to raise prices to cover costs.

2. Marketing and Advertising

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A significant portion of the high prices for medications can be attributed to pharmaceutical giants’ extensive marketing and advertising campaigns. Each of those television advertisements costs thousands to produce. In 2022, the combined top 10 pharmaceutical spend on TV advertising alone accounted for $1.68 billion. This cost is passed on to the consumer through higher-priced medications.

3. Patent Protection

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The patents granted to pharmaceutical companies allow them to have a monopoly on their medications, which keeps prices high for consumers. When the patent system was first established, it aimed to foster innovation by providing protection for inventions and new drugs. According to some sources, however, many pharmaceutical companies are now less focused on innovating new medications and more on monopolizing existing ones.

When patents expire, more affordable generic drugs can enter the market. The initial generic competitor’s product is offered at a discount of around 20% to 30% compared to the price charged for the branded product, according to the Federal Trade Commission.

4. Regulatory Compliance

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Regulatory compliance from the FDA ensures the safety and quality of our medicines. Yet, some stringent regulations imposed by health authorities can increase the time and resources required to bring a drug to market. Regulatory compliance can impact medicine prices by adding costs to drug development and production. Balancing compliance with affordability is really important to maintain innovation and accessibility in the pharmaceutical market.

5. Supply Chain Complexity

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The pharmaceutical supply chain is a complex network that spans from the raw material source for the medications to manufacturing, distribution, and regulatory compliance. An efficient supply chain can help to keep costs lower.

Pharmaceutical companies face multiple challenges affecting efficiency, such as product counterfeiting, a fractured network of suppliers, raw material sourcing, and cold chain problems, as medicines with a limited shelf life need to be stored in a cold environment before they reach the consumers. Addressing these challenges is crucial for speeding up the supply chain and reducing expenses.

6. Insurance Dynamics

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Pharmaceutical companies negotiate drug prices with healthcare systems. In the United States, multiple private insurers are involved, posing challenges to regulating the prices of specific medications. That’s why some insurance companies might cover a medication while another might not.

7. Rebates and Discounts

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Sometimes, rebates and discounts can help make medicines cheaper for patients. Yet because these deals are often kept secret, the real cost of medicines is hard to know.

The other issue is they might encourage doctors to prescribe certain drugs even if there are better options. This can make it confusing for patients and doctors to determine the best choices. So, while rebates and discounts can lower medicine prices, they can also create problems and make things more complicated.

8. Generic Competition

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Generic medications can offer the same products to consumers at significantly lower rates. When a medicine is under patent protection, it cannot be replicated, which means there is no competition for brand-name pharmaceuticals, and they can keep their prices high.

Generic approval can take time, though, which means drugs will remain high until that happens.

9. International Price Disparities

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Researchers recently published a paper showing that drug prices set by manufacturers in the United States were much higher than those in other countries across the globe, with the exception of generic medication. On average, U.S. prices were 278% of those in other countries. This results in people going overseas or to different countries to get medications. Sometimes, traveling for medication is cheaper than just paying the prices in the United States.

10. Healthcare System Fragmentation

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The state of the U.S. healthcare system contributes to inefficiencies and added costs of drug prices. These drug prices increase when healthcare is divided up among different groups like insurers and hospitals. This is because it’s harder to negotiate lower prices, and the added paperwork costs money.

Also, the rules for drugs can be different depending on where you go in the country. This makes it tough for drug companies to set fair prices, so they often end up higher.

11. Lobbying and Political Influence

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Government efforts to lower drug costs might be a target for lobbyists and campaign donors in the pharmaceutical industry. A study from 1999 to 2018 found that this industry spent billions on lobbying and campaign contributions.

Based on that same study, pharmaceutical companies spend an average of $233 million annually on lobbying the federal government. They also gave $414 million to presidential and congressional candidates and $877 million to state candidates and committees.

12. Research Funding Sources

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If pharmaceutical companies fund research themselves, they may prioritize developing profitable drugs rather than addressing public health needs. This could result in higher medication prices as companies aim to maximize their profits.

This dilemma may be avoided if government agencies or independent organizations fund research. There may be less pressure to prioritize profitability, therefore lowering drug costs.

13. Importation and Parallel Trade

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Importation of drugs from one country to another and parallel trade, which involves buying drugs in a cheaper country and selling them in a more expensive one, can lower drug prices by creating competition and using the price differences between countries.

Yet, there are rules and challenges with how the drugs are sold. Companies might try to stop them from keeping their profits high and restrict people from accessing lower prices.

14. Market Size

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The number of people with a certain disease can impact how much medicine costs. For rare diseases that affect only a few people, making medicine can be expensive for companies because they have to spend a lot on research and production, but they sell fewer pills. So, the price of medicine for rare diseases is often higher.

On the other hand, companies can make medicine more efficient for common diseases that affect many people, so they might sell it for less. Overall, the amount of people with a disease can affect how much the medicine for that disease costs.

15. Consumer Awareness and Advocacy

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The pharmaceutical industry has had issues related to transparency. These include concerns about drug pricing, a lack of openness in reporting clinical trial data, and undisclosed financial relationships between pharmaceutical companies and healthcare providers.

Consumer awareness and advocacy efforts influence drug prices by demanding affordable options, promoting transparency, advocating for policy changes, and encouraging the use of generic alternatives. These actions empower consumers, hold pharmaceutical companies and policymakers accountable, and ultimately make medications more affordable and accessible.

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Ree Winter, an Australian journalist now based in New Orleans, combines her love for solo travel with a sharp eye for great flight and accommodation deals. She eagerly shares her travel insights with her audience, drawing from her rich experiences. Ree holds a Master's degree in Journalism and a Bachelor of Arts in Literature and History. Her fascination with history is evident in her stint as a tour guide at historic house museums, showcasing her knowledge of architectural history. Beyond journalism and history, Ree has a unique flair for coffee culture. As a barista, she's operated a coffee van at various events and markets, showcasing her skill in coffee preparation.