Why is Medicine So Expensive? According to research, Americans spend an average of $1,200 on prescription drugs yearly, and the study predicts that this cost of healthcare will continue increasing. Consequently, there’s been the recent fear that patients will be unable to afford necessary medications, a financial barrier that may ultimately worsen medical conditions and increase mortality rates.

So, we must ask, “Why is medicine so expensive?”

The price tags on medications are not arbitrary and many factors influence them. Each step of drug development requires enormous financial investment, from research to post-marketing surveillance. When new prescription drugs enter the market, the pharma industry sets the price to cover the expenses spent to make enough profits. 

As you read, you’ll understand why prescription drugs cost so much, why the price of a medication may vary across countries, and potential solutions to reduce prescription drug prices. Let’s get right to it.

Table of Contents

• The evolution of big pharma and its impact on the cost of medicines
• Why does medicine cost so much? 
• Why are there global differences in medicine pricing?
• Potential solutions to reduce drug prices
• Wrap-up

The Evolution of the Big Pharma and its Impact On the Cost of Medicines

The pharmaceutical industry dates centuries back. Then, herbal remedies were standard due to their affordability and accessibility. However, they posed serious quality problems. Many herbal plants contain toxic chemicals in addition to the active ingredient, which led to the era of purification and isolation of the pharmacological compound. 

Why is medicine so expensive if we’re in 2023, and there’s far more to pharma manufacturing than herbs, tableting, or injection making? Biotechnology, personalized medicine, and artificial intelligence are transforming medicine production. These elements have both individual and collective impact. Biotechnology targets drug action at the molecular level. This will help prevent unwanted interactions with neighboring healthy cells. 

The use of personalized medicine in rare diseases has reduced mortality rates as the approach takes account of the human genetic makeup. As a result, a patient uses the proper medication at the required dosage. Furthermore, drug designers now use AI to monitor data and improve drug design. 

The problem is that these cutting-edge approaches are pricey. They rely on sophisticated and expensive machines and tools. Additionally, there can be uncertainty regarding the outcome. Balancing innovations and the associated costs has been a challenge for drug-making companies. 

Why Does Medicine Cost So Much? 

Interestingly, there is no straightforward answer to this question. We’ve noticed that the price hike involves three key players – drug manufacturers, insurers, and pharmacy benefit managers (PBM). Each entity contributes to the escalated price of drugs. The following are some general considerations of why medicines may cost so much.

Costs and Risks Associated With Medical Research 

Pharmaceutical research involves all the activity in developing and discovering new drug entities and devices. It is divided into two stages- the preclinical and clinical. Once a lead compound is known, the preclinical stage is initiated. 

The preclinical stage involves in-vitro, pharmacokinetics, pharmacodynamics, and toxicology studies. After a successful completion, unsafe and ineffective drugs are filtered out. Unfortunately, it does not come at a cheap price. This stage may cost $20 million or more due to the animal and laboratory testing involved.

Furthermore, the clinical trial stage is divided into four expensive phases- Phases I-IV. It is important to note that drug research and development is a risky endeavor. Not all drugs that pass through clinical trials make it to market. One of 5,000 leads meets the criteria for further development. 

Financial Impact of Regulation on Drug Prices

In drug companies, regulations ensure that research and testing standards are adhered to. These regulations cover each step in the drug development process. For instance, because of the animal testing involved in preclinical testing, the Animal Welfare Act controls this phase of drug discovery. Similarly, the US Food and Drug Administration (FDA) regulates all stages, from clinical research to post-marketing surveillance. 

Furthermore, if the lead in question is a potential psychoactive substance, the country’s Drug Enforcement Agency further regulates it. These regulatory agencies charge a certain amount to fund the entire process. The structure and the amount paid vary from country to country. 

The Cost of Marketing and Advertising 

Another factor contributing to rising drug prices is the cost of promoting it. It includes the amount spent on branding, inventory management, and distribution. Marketing and advertising can affect the price of prescription drugs in many ways. First, the cost of media advertising is high. The money pharmaceutical companies spend is factored in when putting a price on the drug. They do this to get a high return on investment. 

Furthermore, many drug manufacturers use medical representatives to educate healthcare professionals about their products. They often offer food and gifts to gain awareness and sympathy. Overall, advertising may increase the demand for the drug product.

A higher demand directly affects the cost of the drug. This is because when customers become more aware and patronage increases, companies tend to increase the price of their products. 

Patent Policies and Intellectual Property Rights

When a new drug is released, the company has certain rights over it to avoid counterfeiting and promote patients’ safety. For a specific amount of time, the intellectual property right gives the company the freedom to manufacture and make profits from it without competition. 

Without this right, the safety and efficacy of a drug is not assured. However, the company may set its drug price very high because of its legal monopoly. This is because there is no competition or pressure to lower the price. 

Cost of Manufacturing and Quality Control 

As expected, the cost of manufacturing a drug product will influence the final pricing. The accessibility and affordability of raw materials is the determining factor. This is especially true for prescription drugs that use rare ingredients or complex manufacturing procedures. 

Furthermore, for a pharma company to adhere to Good Manufacturing Practices (GMPs) for quality control, they must test the drug product at every development stage. Testing the raw materials, intermediate, and finished products may require heavy and costly equipment. All these factors will inevitably contribute to the cost of the drug when on the market. 

The Role of the Healthcare System and Insurance

Based on individual countries, the healthcare system may have some negotiating power regarding the price of a drug. They interact with the pharma company before reaching an agreement. Middlemen in the pharmaceutical supply chain buy goods for a larger population.

As a result, they can demand a lower price. Comparatively, the cost of medicine will be higher for countries without such health insurance systems. 

Why are there Global Differences in Medicine Pricing?

The price of a medication may vary across countries. Generally, the cost of medication is higher in industrialized countries. For low-income countries, prescription drugs are made affordable so that effective medicines are available for all. However, this may not always be true. Several factors contribute to these disparities 

Regulatory Variances

The different laws and regulations in each country may determine how much new and existing drugs cost. In some European countries, the government has a level of autonomy on drug pricing. Hence, the cost of medicine in these areas will be comparatively lower. On the other hand, the government has little or no say regarding drug pricing in the United States. The manufacturers set the price. 

Global Funding

Some countries are beneficiaries of funding from international agencies and NGOs. This approach is common in rare diseases like HIV/AIDS, cancer, tuberculosis, and malaria. These bodies may fund the drug’s research and development process. 

Cultural and Social Considerations 

In places where modern medication is a norm, prescription drugs might be overpriced. On the other hand,  some countries still rely on alternative medicine for healing. In such places, the cost of medication may be low because of reduced demands. 

Health Literacy 

Health literacy refers to the degree to which individuals can understand health information to make informed decisions. In countries with a high level of literacy, the rate of drug use is lower. This will reduce the burden of healthcare and the cost of new drugs. 

Potential Solutions to Reduce Drug Prices

Every problem has a solution if one addresses it strategically. Care should be taken when lowering drug prices to avoid jeopardizing efficacy. You can keep the cost of medicine down using any of the following ideas:

Innovations Aimed at Cost Reduction

Certain innovations, including generic drugs and telemedicine, have been implemented to reduce the cost of prescription drugs. Generic drugs are less expensive than their branded counterparts. They contain the same active ingredients and offer the same benefits. Generic drugs are cheaper because the clinical trials for the active ingredient have been bypassed. 

Furthermore, telemedicine has redesigned how healthcare is delivered. With scheduled video meetings, medical doctors can assess whether a patient requires medical intervention. 

This will reduce travel expenses and prevent unnecessary drug use. Healthcare professionals can also follow up with patients efficiently. As a result, they can determine if the patient needs additional support and reduce the cost of emergencies.

Patient Assistance and Access Programs

Some assistance programs advocate for reasonable medicine pricing. They ensure new drugs are available at a low price. These advocates may provide new medications for free or at a subsidized price. They also offer educational materials to guide patients when making health decisions. 

Therapeutic Substitution 

Therapeutic substitution involves replacing a drug with a chemically equivalent alternative. The new drug offers similar therapeutic benefits at a cheaper rate. However, therapeutic substitution is controversial because individuals respond to drugs differently. 

What works for one patient may not be effective for another. Additionally, healthcare professionals need to get full consent from a patient before substituting a drug. 

Wrap-up

Medication is an essential part of the modern healthcare system. However, it’s sometimes a financial burden for patients with low-income structures or health insurance. This could be due to research and development costs, regulatory approval, and the cost of promoting new drugs.  

Some potential solutions to these problems include sales automation and streamlining data collection processes for research.

Although the cost of medicine is not arbitrary, as many factors go into consideration before pharmaceutical companies arrive at a set price, it’s only profitable if people can afford these drugs, and even then, it takes a level of nurturing to get them to purchase.

Overall, these processes could be futile without efficient Pharm CRMs that guarantee conversion by providing data for making informed marketing decisions that would benefit your business.

Get started right here!