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The Link between Prescription Drug Shortages and Price Increases

There may be no health policy issue more pressing than the rising cost of prescription drugs. In 2016, we spent $450 billion on prescription drugs in the U.S.—slightly less than a quarter of our total medical care bill—with prescription drug prices rising about twice as much as health care costs in general. At UPMC Health Plan, we now spend more on medications than we do on hospitalization costs.

In a paper published this week in Annals of Internal Medicine, we reviewed drug prices after a very specific event— drug manufacturers informing the Food and Drug Administration (FDA) of a medication shortage.


Study overview

Using the FDA website and a drug pricing database, we evaluated shortages for nearly 100 medications between December 2015 and December 2016. Our analysis looked at pricing in the months before and after the shortages were announced.


Key findings:

  • For drugs that experienced shortages in 2015 and 2016, prices increased twice as fast as they would have without a shortage.
  • The effect of the shortage was significantly worse when the drugs were supplied by three or fewer manufacturers. When competition is limited, price increases are greater.


What else do ‘shortages’ mean for consumers?

Consumers who have no prescription medication coverage, those who have not yet paid their full health care deductible, and those who must pay coinsurance for medications have higher out-of-pocket costs when there is a shortage of their medication.

Efforts to protect consumers from these price increases are essential.






How can this situation be improved?

Prescription drug shortages are a public health crisis that policymakers need to pay attention to and address—now. Specifically, lawmakers should be vigilant about determining whether certain manufacturers use shortages to increases prices. If they do, policymakers should consider setting payment caps for drugs during shortages. This could help limit price increases to levels seen during normal times.


We invite you to take a look at our article in Annals of Internal Medicine for more details.