Why drug costs are going up.

Because they can.
Brand drug prices went up yet again last year, by over 7%. This on the heels of a similar price increase in 2006, which ‘coincidentally’ occurred after Part D went into effect and millions of seniors suddenly could buy drugs.
But this isn’t the whole story. Price is only part of the equation, the other parts being frequency (what percentage of the population takes drugs) and utilization (how many pills they take).
The frequency and utilization problem is just as bad. But lets focus on price.

The 7.4% increase was two-and-a-half times the overall inflation rate, and somewhat higher than prior year price increases in the 5% – 6.6% range. One drug in particular was singled out by most press reports due to the large price increase – Ambien.
Everyone’s favorite sleep aid cost 28% more at the end of 2007 than at the beginning of the year. The price increase is not too surprising, as manufacturers often raise prices on drugs that are going off patent as they seek to squeeze the last few pennies of profit, while opening up some room for the coming generics to come in at high prices (the generics are often produced by a company affiliated with the brand manufacturer).
Another drug that zoomed up last year was everyone’s favorite narcotic lollypop – Actiq. the price increase was a bit more (100%), the drug was coming off patent, and surprise surprise, a generic hit the market towards the end of the year, at a discount to the then-current price, but at a steep premium to the price at the outset of 2007.
Drug prices increased, driven by manufacturers’ decisions to maximize profits. I’ve no problem with that; the question is how much longer will payers allow themselves to be held up by pharma.