Good Question: How Do Drug Companies Set Their Prices?
MINNEAPOLIS (WCCO) -- The cost of EpiPens, a shot to treat life-threatening allergies, has jumped from about $100 to $600 in the past six years. That increase has made lots of parents angry and has now garnered the attention of lawmakers who want to investigate.
So, how do drug companies set their prices? Good Question.
"The pharmaceutical market is not like any other market in the US or the world," says Dr. Stephen Schondelmeyer, a drug pricing expert at the University of Minnesota's College of Pharmacy. "Someone other than me chooses what drug I have access to so I don't get to comparison shop."
Over the past decade, the price of insulin drugs have tripled and cancer drugs have increased ten-fold. Last year, people were outraged when Turing Pharmaceuticals raised the price of a drug used by cancer and AIDS patients by 5,000 percent.
In the U.S., there are no regulations on what prices a drug company can set. Drug companies will talk with doctors and negotiate with insurance companies, knowing it can cost up to half a billion dollars to bring a new drug to market.
"A normal company would consider what it costs to make the drug, what it costs to market the drug, how do I recover some of research and development costs," Dr. Schondelmeyer said. "Drug companies will weigh all of those into account and then they say what do we think our product is worth in the marketplace and what can we get away with."
Manufacturers will set a number. Ultimately, few people will pay that full price due to rebates, discounts and insurance. People with high deductible plans are more likely to bear a greater proportion of the costs.
"It's taking more out of my pocket in insurance premiums," Dr. Schondelmeyer said. "To say it's covered by insurance, so don't worry about it doesn't mean the money magically appears."
He would like to see more transparency when it comes to the costs, discounts and rebates. He's also in favor of more regulation and accountability when it comes to the pricing of drugs.
"We have a market where the price is hidden from everyone making the decisions, yet we pretend that it's a market making wise decisions and, in fact, it does not," Dr. Schondelmeyer said.
