3 Reasons Why Your Medication Costs Are Soaring

If you've noticed that you're paying quite a bit more this year for prescription medications, you're not the only one: Among drugs that saw increases from January 2022 to January 2023, the average price increase was 15.2% -- that translates to $590 per drug -- according to the Office of the Assistant Secretary for Planning and Evaluation (ASPE).

It can be frustrating to see such rises, and it can make you question why something that clearly can be available for less money is now costing you more. To answer that, here are three reasons why your medication prices may be going up in 2024.

1. High development costs

Creating a new medication takes a lot of time, resources, and money. In fact, according to audit, consulting-, tax-, and advisory-service provider ​​Deloitte, it costs about $2 billion to bring a new drug to the market. So once that drug has been approved by the Food and Drug Administration (FDA), drug companies can choose to price the drug high to recoup costs.

Let's take a look at one of the most expensive drugs on the market: cancer medications. From 2012 to 2017, the U.S. spent $6.8 billion more on such brand-name drugs, even as the costs in other parts of the world spent nearly $2 billion less.

And keep in mind that the drug company behind these brand-name medications can raise prices more than once per year. So it's easy to see how these can balloon out of proportion the longer you're on a medication, messing with your budget.

2. Drug monopolies

Opting for generics is often touted as the best way to save on medication prices, but what happens if your medication is only available from a single source? That drug monopoly could be why you're paying so much for your medicine.

In fact, while multi-source drugs tend to see higher percentage increases in prices, single-source ones see the highest real-dollar increases. According to the ASPE, the average price change for single source drugs was 7.4% (or $958), while the average increase for multi-source drugs was 26% (amounting to just $69) from January of 2022 to the same time the next year.

There's also a 20-year span after a new drug is developed during which the pharmaceutical company has a patent on that drug. So unless it agrees to produce a generic version, there is up to a two-decade time period during which it controls the costs. (Keep in mind that development alone doesn't mean the company can start selling, so the time period can be reduced by years while the FDA is reviewing the drug.)

3. Systemic issues with drug pricing

There are several factors within how the government deals with and regulates (or rather, fails to regulate) drugs that impact how much you pay.

• Lack of federal government regulation: There is no federal regulation for drug prices, outside of Medicaid. In other words, there aren't any built-in protections for those who rely on medication to stay alive and maintain a good quality of life if they don't qualify for Medicaid. For them, the costs can theoretically increase forever.
• Lobbying to keep the status quo: Although there have been pushes to create a way to regulate drug prices, lobbyists from the pharmaceutical industry can take steps to block them. They also tend to have much more money to put toward pushing their agenda than consumer-focused groups aimed at drug price regulations.
• Payoffs to delay generics: Drug companies are allowed to pay companies seeking to create generics to hold off on making those cheaper drugs. This is called a "pay for delay" deal.

There are so many factors working against drug affordability that it's really no wonder the costs have risen so high. That's why it's important to do everything you can to save on medication costs. As a start, it's best to use generics whenever possible, seek out preferred medications for your insurance plan, get a 90-day supply to reduce your copays, and shop around at pharmacies to find the best prices.