Why do some drugs cost more than others?

When you see a brand name prescription drug that costs $700 and a generic equivalent for less than $20, you may wonder why there’s such a big price difference – considering the two drugs are supposed to do the same thing for you.

The big shock comes when you find out about the cheaper prescription only after you’ve paid for the more expensive one. It’s enough to give you heartburn.

Speaking of heartburn...

If you get a bad case of acid reflux, you may need something to treat it:

  • Baking soda is a time-honored home remedy for less than 50 cents a box
  • An over-the-counter bottle of Maalox or Pepcid may cost about $4
  • Prescription drugs for acid reflux can cost between $25 and $120 for a 30-day supply

The advertised pill vs. a less expensive alternative drug

If your heartburn keeps coming back, your doctor may prescribe a well-advertised capsule you’ve often seen on TV, for about $120 for a month’s supply.

But if you remember to ask your doctor for a less expensive alternative, you could go home with a prescription for an equally effective drug at a mere fraction of the cost – maybe as little as $25.

And if your doctor is interested in helping you save even more cash, he or she can direct you to your local drugstore without a prescription for an over-the-counter medicine identical to a leading prescription drug – but it could cost as little as $20 a month.

This is just one illustration of the wide range of medication costs. Prices can vary greatly depending on your specific drugs, your choice of drugstores, or mail-order options.

Here are more topics about why drugs are so expensive:

Prescription drug costs: up, up and away

Struggling with increased healthcare costs? To keep your healthcare spending from rising as fast as a helium balloon, you need to understand that increasing prescription prices is one part of the equation. In fact, pharmacy is the fastest growing expense in healthcare today.

While the majority of your healthcare dollars are spent on hospitals, doctors, and devices, medications play a bigger role than ever.

In 2007, the average American had 12.6 prescriptions a year, up from 8.9 in 1997, according to the Kaiser Family Foundation.

A pharmaceutical industry study shows that retail prices for both generic and brand name prescriptions increased an average of 6.9 percent a year between 1997 and 2007.

The increased spending is because:

  • We’ve increased our use of drugs: More people use medications to prevent, manage, and treat medical conditions. Drugs have dramatically improved the lives of patients with cancer, asthma, stroke, migraines, heart failure, Alzheimer’s, diabetes, depression, allergies and more. Kaiser Family Foundation statistics show that 91 percent of seniors and 61 percent of younger adults use a prescription medicine regularly. From 1994 to 2004, the number of prescriptions purchased in the United States increased 68 percent, while the population only grew 12 percent, according to Kaiser.
  • We’re using newer, higher-cost drugs: Bringing a new drug to market is very expensive. It can take up to 15 years and cost as much as $800 million. Each year the FDA approves only a couple of dozen new drugs, but there are hundreds in development. Remember, pharmaceutical manufacturers build in profit margins to pay for research and development of drugs that never reach the market. Pharmaceutical manufacturers invested $50.3 billion in 2008 in developing new medicines.
  • The older drugs have gone up in price. Existing drugs have provided tremendous benefits, according to the FDA, such as preventing hospitalization, eliminating surgeries, and more. But, like everything else, their costs keep going up.

Sources:

Sources for this Website include:

  • "Cost to bring drug to market: $802m.": HealthcareEconomist.com
  • "Good Question: Why Do Drugs Cost So Much?"
  • "U.S. Health-Care Spending Rose 9.3% in 2002," Sara Schaefer Munoz, The Wall Street Journal, January 9, 2004, citing a study of health-care spending by the Centers for Medicare & Medicaid Services
  • A joint study by AARP and the Washington state attorney general’s office
  • Pharmaceutical Research and Manufacturers of America Website
  • Analyzing the side effects of drug ads, USAToday.com, Feb. 29, 2008
  • Kaiser Family Foundation "Prescription Drug Trends", Sept. 2008
  • MedicineNet.com, Why Drugs Cost So Much
  • U.S. Food & Drug Administration "Generic Drugs: What You Need To Know"

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