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How Do Pharmaceutical Companies Establish Drug Prices?

Posted on May 14, 2016

The pricing of medications has become a hot button issue lately, in the media, Congress, and in the presidential race. Much of this focus is due to the $84,000 price tag Gilead Sciences chose to put on a bottle of Sovaldi (a cure for hepatitis C) and Turning Pharmaceuticals decision to raise the life saving medication Daraprim by over 5,000 percent ($13.50 per tablet to $750 per tablet).

So, how do pharmaceutical corporations decide what they are going to charge consumers and their insurance companies for a medication? According to University of Southern California professor Darius Lakdawalla, “(Drug companies) just try to figure out what people are going to be willing to pay for the drug.” And how do they do that? Lakdawalla says “(Drug companies) usually talk to insurance companies. They look at what insurance companies are paying for other similar drugs. They’;re probably talking to physicians to understand how likely they’;re going to be to use their drug versus any other alternatives on the marketplace.”

While that simple method might be used in some cases, that’s clearly not the way Turning Pharmaceuticals came up with its 5,000 plus percent price hike for Daraprim. Emails from Turning CEO Martin Shkreli to his board of directors illustrate that sometimes medication pricing is decided purely by greed. The emails, released to the public by Congress’ House Government Reform and Oversight Committee, reveal Shkreli telling his cabal, “We raised the price from $1,700 per bottle to $75,000. … So 5,000 paying bottles at the new price is $375,000,000 — almost all of it is profit.” This quote shows that in some cases, greed is the preferred method of determining medication prices.

If you feel that you or a family member is being over-charged for a needed drug, contact a dedicated pharmaceutical litigator. Farah & Farah see it as our mission to stand up to large corporations on behalf of regular people. We are currently investigating pharmaceutical litigation claims nationwide.

Call Farah & Farah with any question you may have regarding your legal rights and options at (800) 533-3555.