Drug prices outpaced inflation since the 1990s

Drug prices were five times greater in 2021 than in 1984, according to data collected by the Bureau of Labor Statistics (BLS). The rise was three times greater than the rate of inflation for all other goods. If a medication was priced at $100 in 1984, it would cost more than $500 for a drug used to treat the same condition in 2021.^[1]

The analysis is based on the producer price index, a BLS measure of how much a producer charges for a good. It’s one of the statistics used by the government to show how inflation affects prices over time.  This is different from the consumer price index, which is based on how much consumers pay for a good. The index includes prescription and non-prescription drugs produced in the US.

Which pharmaceuticals increased the most in price?

Cardiovascular drug prices grew the most over the past 20 years, outpacing other pharmaceutical categories. A heart disease drug that cost $100 in 2000 would cost about $1,350 in 2021, according to BLS data. This increase is more than 10 times larger than any other drug category.

Most of these drugs treat heart disease, the most common cause of death nationwide. Cardiovascular drugs are 25% of the top 200 drugs prescribed in the US, according to the National Institute of Health. Of the 10 most expensive medications for Medicare Part D, six were cardiovascular drugs.

How are drug prices determined?

In the US, pharmaceutical prices depend on if a patient has insurance and, if they do, how much the plan covers. Private insurance plans negotiate prices with drug manufacturers and wholesalers.

Medicare and Medicaid currently do not have the ability to negotiate drug prices. Instead, Medicare prices are based on the average sale price of the drug across plans. Medicaid prices also depend on the average sale price, but companies are required by law to give at least a 23.1% discount on most brand-name drugs. Other government-run plans, such as ones from Veteran’s Affairs and the Department of Defense, can negotiate drug prices like private insurance.

Branding and patents also affect price.

There are two main categories of pharmaceuticals: generic and branded. A new drug usually starts out as a branded drug that is protected by patent and can only be sold by the patented company, according to the Food and Drug Administration (FDA). Branded drugs are typically more expensive because the patented company holds sole pricing power. Factors such as high research and development costs, drug uniqueness, and production costs all contribute to the price of branded drugs. Of the top 50 most expensive drugs for Medicare Part D, 48 are branded.

Once the patent on a drug expires, other companies can produce generic versions. Generic drugs tend to cost less than branded drugs because of market competition and lower research costs. The FDA still requires generic drugs to be approved by the agency.

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