Recent headlines on the exploding cost of prescription drugs have not gone unnoticed by Washington D.C. lawmakers.  The United States Senate Special Committee on Aging has issued a 130 page report examining the cost increases to previously affordable drugs that were acquired by pharmaceutical companies off patent.

Traditionally, the prescription drug industry recouped the cost of research and development by holding a new drug’s patent and being the sole manufacturer for a period of years before generic production was allowed after the patent expired.  New practices by pharmaceutical companies are more in line with hedge fund practices that break the traditional model in favor of fast returns.

The report details actions by several pharmaceutical companies who purchased drugs with no alternate manufacturers and increased prices for seemingly no reason.  Two notorious examples are the price increases of over $300 per dose of EpiPen and Pyrimethamine’s increase from $13.50 to $750 per tablet.  When questioned, the common response from these pharmaceutical companies was that the majority of consumers have access to rebates and incentives that significantly lower the market price of these drugs.

A combination of price regulation and increased competition appears to be the solution suggested by Washington.  Senators Collins and McCaskill suggest the FDA should prioritize new generic drug applications, temporarily import foreign drugs to fill gaps, and promote more price transparency in purchaser negotiations.  The incoming Trump administration has also signaled their interest in tackling this problem in conjunction with other health care reforms.

While the study discusses these practices effect on prescription drug costs to Medicare and health systems, any employer providing prescription drug benefits to employees can relate to the findings within this report.  Increasing drug prices have been a major cost driver for plan sponsors for the past 10 years and will continue into the future.