Supply and Demand - Pharmaceutical Industry

The utilization of prescription drugs has increased across all age groups in the US, with 50% of Americans taking at least one prescription drug (Rice & Unruh, 2016). This can be attributed to physician-induced demand, substitution of pharmaceuticals for other medical regimens, commercialization of the products, increase in the aging population and drug insurance coverage, and also the increase in chronic conditions. Lathan discusses the startling fact that the rate increase of prescription drugs purchased was considerably higher in contrast to the US population growth - 71% and 9% respectively (Rice & Unruh, 2016, p. 264).

The rise in drug prices is causing the public to ask why this is so and why there isn’t anything being done, or what the reason could be for sky high prices. Some of the reasons include pharmaceutical companies setting their drug prices

The prices of prescription drugs in the United States are by far the highest in the world. [1] On average, Europeans pay 40% less than Americans for the same medications. [2] Consumers have been resorting to several ways, sometimes putting themselves in harm’s way, to alleviate the burden of high prescription drug costs. Some buy their medications online or cross the borders to neighboring countries so they would be able to afford buying their needed medications. Others have resorted to the illegal act of selling their unused medications in online forums just to recover part of their expenses. Many factors contribute to the increased drug prices in the United States including research and

In 2015, the pharmaceutical industry spent over 27 billion dollars on advertising. The two greatest components of this effort were promotional advertising and free medication sampling, which the pharmaceuticals invested 15.5 and 5.7 billion dollars respectively (“Persuading the Prescribers”). Promotional advertising involves direct contact with health professionals, the most common being extravagant lunch conferences held for physicians and their staff. On the other hand, sampling involves distributing free sample of medications to physicians, who then have a choice of providing these samples to patients. As a result of these methods, the industry has seen revenue around $400 billion with 90% of physicians having a relationship with a drug company (Campbell 2007). Moreover, the prices of prescriptions continue to rise; a copay of a generic drug is $11.72, preferred brand drug is $36.37 and a specialty drug is $58.37 (Coleman and Geneson 2014). Although the profits are immense in the numbers demonstrated above, it is no surprise when pharmaceutical drug companies elevate their prices even more. For instance, recently Turing Pharmaceuticals raised the price of their medication Daraprim from $13.50 to $750. Keep in mind, this medication is used for threatening parasitic infections, aids, and cancer with alternative options currently found to be inefficient (Pollack 2015). Another example of this practice involves cycloserine, a drug used to

Shortages of prescription drugs in the United States are a serious threat to our nation’s health and safety. At first blush, this problem appears fairly simple and straight forward to solve. In reality, there is a complex web of causation with a number of root causes contributing to drug shortages. The aim of this paper is to answer the question: How do we mitigate prescription drug shortages? This discussion is written from the standpoint of advising the current presidential administration how to address this crisis. This essay begins with a discussion regarding the background of the issue. Next, the landscape, including stakeholders in this matter is identified. Following, political, social, economic, and practical factors surrounding

Annually, the US spends $300 billion dollars on pharmaceutical drugs. This is due to the over-diagnosing of certain conditions. Everyday, Americans are exposed to an enormous amount of advertisements for medications of all kinds. For example, 1 in 10 Americans are taking

Prescription drug prices are on the rise in the United States. Currently, the United States does not implement a price control on prescription drugs. Every day the supply and demand for prescription drugs fluctuates. Pharmaceutical companies produce drugs that are necessary for survival. Therefore, it is necessary for research and development to continue in the United States. Those suffering the effects of exorbitant prices must do so until a generic form of a prescription drug is produced. Once approved by the FDA, new drugs will make their appearance on the market and patients will no longer suffer financially. Until then, it is necessary for pharmaceutical companies to price their drugs based on the idea of supply and demand. This produces the profit used to fund research. Price controls discourage innovation. If a price control were set in place, of course the price of prescription drugs would decrease. However, the development of new drugs decreases with it. Today’s generation would benefit from lower prices, while future generations would suffer from the loss of drug innovation.

Even though the pharmaceutical industry had been highly profitable and contributed about 40% OF Ciba-Geigy’s revenues in profit, there were some trends, which were worrying. The government had attempted to reduce a cost of healthcare thus; pressure to lower costs was mounting on industrialized countries. There were restrictions to introduce new products, and price control became stricter while limiting the freedom of doctors to prescribe medications. Patent controls were becoming reduced, and the pharmaceutical industry was becoming increasingly criticized. These trends later made the industry to

Market failure appears when there is a failure in allocation of goods and services. When the market is unsuccessful, the government is called to intervene and correct the failure. Over the years, government participation in the pharmaceutical market has been more wide-ranging than any other good or service. With the government’s ability to regulate, mandate, inform, finance and provide, their intervention to overcome market failure can be beneficial for the economy. Market failure plays a significant role in today’s economy.

The rise in costs of prescription medicines affects all sectors of the health care industry, including private insurers, public programs, and patients. Spending on prescription drugs continues to be an important health care concern, particularly in light of rising pharmaceutical costs, the aging population, and increased use of costly specialty drugs. In recent history, increases in prescription drug costs have outpaced other categories of health care spending, rising rapidly throughout the latter half of the 1990s and early 2000s. (Kaiseredu.org, 2012).

Prescription drug prices rose three times faster than inflation in the decade between 1981 and 1991, making the pharmaceutical industry the nation's most profitable business. Prescription drugs even exceeded the rapidly rising inflation rate for all other medical services. They now represent at least 10% of all the medical

1B. In the real world, a perfectly competitive market rarely exists. One or more assumptions are violated in most markets and this is certainly the case in the pharmaceutical market.

A lot of people, particularly the patients who need them, are beginning to wonder why American drug prices are so high. It makes sense why the pharmaceutical companies are selling at the prices they do: they are a business; and they want to, above all else, make a profit. But the real question is: what are all of the

Consumers do not always evaluate prices objectively. Often a referenced price is a known and available price, like that of a competitor. Pricing Datril at par with Tylenol and advertising it as a new substitute with same features may have been a fraught tactic in a short-run test environment. Market penetration and share take time and is unknown. Additionally, a price war could have ensued with Tylenol due to cost differences especially in advertising.

This enabled numerous “me too” drugs to achieve satisfactory returns on investment. Imitating a known drug reduced R&D risk considerably, while the marketplace was open to products offering minor advantages such as a more convenient dosage with fewer side effects, but with much the same therapeutic outcome. Generics legislation had a major impact on the industry, providing incentives for innovation and a race to market. The time during which R&D costs could be recouped was drastically curtailed, putting upward pressure on prices. By the end of the 1970s generic entrants and more stringent controls on clinical trials had led to substantial increases in R&D spending.