Why is medicine so expensive

Expensive medicine

source Drugs.com

When I hear the word free market and deregulation I always imagine free markets where we can trade and chose what to sell, how much to charge and negotiate freely.

Recently I have stumbled across a trending topic that was taking rounds in the internet, pharmaceutical corporates gouging prices. vital and important drugs has been made so expensive that cancer and heart patients cant afford their medicine.

Names like Martin Shkreli from Turing Pharmaceuticals who was arrested and faced trial and  J Michael Pearson chief executive of embattled drugmaker Valeant Pharmaceuticals , has been circulating in the media for the same reason dodgy price gouging strategies.

To understand how they could do it I asked my self what is Price after all ?

Johan Strydom Defined Price in his book introduction to Marketing as “the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service”
So when I pay for a medicine its in exchange for its benefits !
that doesn’t explain why some medicines cost up to 20,000 for a monthly supply or even more for some rare medicines.
what pricing strategies are they following and what are their approaches.
When a company is setting a price for its products there are many factors to be considered like costs, competition and the company’s objectives while considering the targeted segment and the company’s proposed position.
  • At Pharmaceutical companies Cost of medicine is not determined by the cost of its production because any one could do it if the right combinations are available. So the main cost issue would be to cover the cost of the R&D.
  • All the pharmaceutical companies would tell you that their objective is to kill a disease or cure a cancer, but how is that possible when patients cant afford the medicine?
  • Competition is not a big issue for pharmaceutical companies because if patented the company got the exclusive rights to be the only producer of the medicine for 20 years and in Australia companies can apply for 5 years extension on top of that 20 years.

Enjoying the free market conditions and its strong lobbies across the world Pharmaceutical industries are applying Cost Plus Pricing strategy where companies set the price of its products at any level it wants to meet a certain profit target(WHO, 2013).

In all industries companies who would apply this pricing strategy would fear that this strategy would place the company  at a competitive disadvantage as it fails to consider consumer demand or competitor pricing, but in this industries companies have a complete monopoly over the production of certain medicines.

many multinational corporates doesn’t conduct R&D rather it goes and buys  out companies who succeed in developing new drugs and increase the drug prices by 5000, 10000 or even much more in some cases to make profit and stock markets love that.

So what to do to push them to reduce prices, specially that we are living in a free market conditions ?

There were different efforts by many countries to make sure medicines are available to its citizens and these efforts include

  • Subsidising Medicine and negotiating with manufacturers on behalf of its citizens. example of this would be The Pharmaceutical Benefits Scheme (PBS) in Australia.
  • Regulating Prices of Medicine and imposing maximum limits to make sure medicines are affordable and fare. Example of this would be Pakistan’s Pharmaceutical industry Polices (Sattar, Maqsood A, 2003).
  • In the United States, Medicine is not subsidised, which made medicine prices the highest in the world there, but recently a new legislation was introduced to fast track the process of some essential generic medicine manufacturing applications, incentivizing lower-price generics to enter the market to compete with monopoly drugs.
  • Investing in local pharmaceutical industry and funding R&D like India and China where material and cheaper and labour is a cheaper option which resulted in a affordable drugs to their citizens.



  • (“Chairman Collins Exposes Valeant’S Drug Pricing Model, Reveals Harm Inflicted On Patients, Health Care System”)
  • WHO Guideline on Country Pharmaceutical Pricing Policies. Geneva: World Health Organization; 2013. 9.7 Annex G, Evidence summary 3 – Application of cost-plus pricing formulae for pharmaceutical products. Available from: http://www.ncbi.nlm.nih.gov/books/NBK258629/
  • Sattar I, Maqsood A. A Marketing MixModel for Pharmaceutical Industry – A PakistaniPerspective. The Journal of Independent Studies andResearch 2003; 1(2): 38-56.



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