Patents - New drugs are protected by patents, and after tweaking the drug or making simple changes manufacterers can often get 20 years of exclusivity. This type of monopoly allows for total control of prices.
Insurance - Different insurance companies cover different pills. But, if brand name drugs are more popular even with higher prices, insurance companies will cover them. This way a consumer doesn't actually feel the pinch in their wallet personally but the cost is still there.
Medicaid - Despite their huge buying power they can't negotiate prices. This means the government is essentially paying sticker price for something they could bargain down.
What does this mean?
Pharmaceutical manufacturing was the most profitable industry in the U.S. from 1995 to 2002, and continues to be on the top of this list. They have huge profit margins hovering around 18%. These profits are after research and development costs and go straight to investors. Is the drug industry really looking out for the public's health or just money like most companies?
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