Lieff Cabraser Civil Justice Blog

Why Drug Prices Skyrocket Despite Market Competition

The LA Times has published an excellent piece on the skyrocketing costs of U.S. prescription drugs despite marketplace competition. The absence of competition for a good or service traditionally provides fertile ground for cost escalation and price-gouging, classic greedy anticompetitive behavior, but the Times’ article explores the prevalence of continuing drug cost escalations in the U.S. even where competition does exist.

As the Times notes, “Unlike nearly every other developed nation, the U.S. allows drug manufacturers to set their own prices, a policy that has resulted in overall medicine costs being far higher than elsewhere. Increasingly, insurers are passing the cost along to patients through higher deductibles.”

Why are these companies raising their prices? Because they can.

Noting the example of Ursodiol, a gallstone medication, the paper reports that the drug’s price has jumped 1,000% in two years — from $0.45 to over $5.00 per capsule — despite no fewer than eight different pharmaceutical companies selling the drug. It certainly sounds like competition in this marketplace is failing 100% to regulate prices. 100%? Make that 1,000%.

The Times goes on to discuss the EpiPen pricing debacle that has received significant recent press attention, where manufacturer Mylan hiked the price of the life-saving pens used by children’s caregivers across America 547% in less than a decade (Mylan is also one of the manufacturers of Ursodiol). But as the Times notes, “Some experts … blamed the EpiPen price hikes on a lack of competition. But even when Sanofi, a competitor, introduced another automatic epinephrine injector in 2013 to challenge Mylan, it charged exactly the same price — $241 for a package of two.”

According to the U.S. Deparment of Health and Human Services, prescription drugs costs are now almost 17% of personal healthcare expenditures – more than double the 7% figure from the 1990s. As the Times writes, the U.S. Department of Justice is looking into pricing practices in the drug industry, as well as exploring possible Sherman Act antitrust violations over monopolistic business practices.

Something is seriously wrong with the way drugs are priced and sold in the U.S. Read the full LA Times article for an in-depth examination of the problem.