US Drug Prices Pushed by Lower Competition, Gap in Supply-Demand

Published Date : Oct 13, 2014

Industry officials have stated several factors that have led to the substantial rise in cost of medicine in the United States. The U.S. legislature has initiated a probe against many of the leading makers of generic drugs, which includes three Indian companies, to find out the extent and the reason of pharma drugs price hike.

Increasing generic market penetration has caused a swell in the competition within the U.S. As increasing competition resulted in lower prices, many companies began opting out of low-margin segments, creating a large gap between supply and demand. Experts stated that the dropping out of key companies from the segment allowed the rest of the competition to increase the prices of their drugs. This leads to a demand override and prices therefore start escalating in a free-pricing market. But most experts agree that the price of generic drugs should still be lesser than that of the original patented drug.

The U.S. legislature has pointed out in a recent letter to generic drug manufacturing companies of a 390 to 8,200 percent price hikes across 10 products.

Industry executives have also emphasized the current rising price and levying of heavy user fees as factors that cause significant drug price hikes in the U.S. The Food and Drug Association (FDA) had introduced a user fee for generic drugs in 2012.

The regulator also raised the levels of its inspections of foreign manufacturing plants. This has enabled companies to raise their investments in compliance. The U.S. hosts a free market for drugs, where prices are governed mostly by competition.