Why Are Prescription Prices So High?

The high price of pharmaceuticals is often cited in the debate over health-care reform. One of the reasons underlying this high cost is the investment needed to discover and develop new drugs. Use of effective medications may actually reduce health-care costs overall.

The costs of pharmaceutical research

• According to the National Bureau of Economic Research (NBER), the cost of developing a new drug is approximately $800 million, and only three of every 10 pharmaceutical products generate revenue in excess of their research and development costs.

Price controls and innovation

• Economic studies have shown that price controls targeting pharmaceuticals would reduce the number of new treatments being developed, which could, according to the NBER, have an overall negative impact on public health.

Pharmaceutical care may reduce overall healthcare costs

• The use of pharmaceuticals is often cost-effective, according to a review by Peter Neumann and colleagues in "Health Affairs," negating the need for more expensive treatments and hospital stays, although many of the most favorable studies cited were funded by the drug industry.

Patient assistance programs

• For people who need but cannot afford certain medications, most pharmaceutical companies offer patient assistance programs through which free medication can be obtained. A database of these programs is available at rxassist.org.

Generics

• Another alternative for patients seeking lower drug costs is the use of generic formulations of brand-name medications. By law, generic drugs must be equivalent to the brand-name drug they are substituted for, and they are usually priced substantially lower.