The cost of prescription drugs in the U.S. is projected to continue rising in 2025 and beyond, driven by a steady stream of high-cost treatments. A recent survey by TD Cowen, based on feedback from 27 health organizations, pharmacies, and hospitals representing about one-fourth of total U.S. drug spending in 2024 ($179 billion) shows that drug prices, particularly for branded medications, are expected to keep climbing. In 2024, per-unit costs for branded drugs rose by 7%, up from a 5% increase in 2023, and this upward trend is expected to persist.
A major factor behind the rising costs is the growing use of expensive treatments for diseases like cancer, obesity, diabetes, and rare conditions, as well as emerging cell and gene therapies. Drugs like Ozempic, a popular GLP-1 treatment for diabetes and weight loss, are contributing to the increase in spending. These therapies, which offer breakthrough benefits, often come with high price tags, making them a significant driver of the rise in drug costs.
Despite efforts to control drug prices, including the Inflation Reduction Act (IRA), the trend towards higher prices appears set to continue. The IRA, which began limiting out-of-pocket expenses for patients and allowed Medicare to negotiate prices for some high-cost drugs, is not expected to have a major effect on overall drug prices. According to the survey, 85% of respondents anticipate that the IRA will have only a “modest” or “moderate” impact on drug prices over the next three years.
Looking ahead to 2025, analysts predict that acquisition costs for branded drugs will rise by 7%, with more moderate increases of around 3% annually over the following three years. Despite legislative efforts to slow price growth, the introduction of new, high-cost therapies is expected to keep pushing prices up. This is particularly true for drugs targeting rare diseases, known as orphan diseases, where the limited competition allows manufacturers to set high prices. Pharmaceutical companies are increasingly focusing on these types of treatments, further driving up costs.
Additionally, the report reveals that drug companies are adopting a new strategy of launching drugs at higher prices, rather than relying on significant price hikes for existing medications. For instance, in 2023, the prices for new drugs were set 35% higher than the previous year. This trend is most notable in the oncology and gene therapy spaces, where new treatments are often priced at premium levels due to the lack of alternative options for patients.
While the federal government has implemented measures to address rising drug prices, such as the IRA, these efforts are not expected to significantly curb the upward trajectory of prescription costs. The healthcare industry is bracing for continued price increases, which are expected to contribute to sustained growth for Big Pharma. As long as the industry continues to innovate and develop high-value drugs, the rising prices will likely persist, posing challenges for patients and payers while supporting the growth of the pharmaceutical sector.
