WSJ: Why competition drives drug prices up, not down

While it is a common belief that more competition in the pharmaceutical industry will help contain high drug costs, Pfizer and Eli Lilly's rivalry over their erectile dysfunction drugs proves otherwise.

In June, New York City-based Pfizer raised the price of Viagra by 13 percent. Just days later, Indianapolis-based Eli Lilly followed suit, increasing the price of Cialis by the same amount, reports The Wall Street Journal.

The drugmakers have made price hikes within weeks — or sometimes even on the same day — of each other for years, according to WSJ. Today, a typical six-pill prescription of Viagra or Cialis is listed at around $300 — more than double the list price of the drugs five years ago, according to wholesale acquisition-cost data from Connecture.

"[Drugmakers are] not rewarded for having a low price and for the most part, the market doesn't punish a high price," said Mick Kolassa, PhD, a pricing advisor for drugmakers and government healthcare programs, in the WSJ report.

Competition fails to drive down prices since patients usually develop a loyalty to one drug and don't want to change to a rival. In addition, health insurers and pharmacy benefit manufacturers can have drug contracts that prohibit them from switching to cheaper options, according to WSJ.

Both Pfizer and Eli Lilly said they consider numerous factors when setting drug prices and raise costs independently of other drug companies, according to the report.

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