Prescription drug prices in the United States

Research shows that prescription drug or medicine prices in the United States are among the highest in the world, including other developed countries. National expenditures on pharmaceuticals accounted for 12.9% of total health care costs, compared to an OECD average of 17.7% (2003 figures).^[1] The high price of prescription drugs is one of the major areas of discussion in the U.S. health care reform debate.

Potential Causes

Although the cost of manufacturing a drug is relatively low, the cost of developing a new drug is relatively high. The United States' high drug prices allow the U.S. pharmaceutical industry to invent drugs that would not be profitable in countries with lower prices.^[2] Herper states that "A single clinical trial can cost $100 million at the high end, and the combined cost of manufacturing and clinical testing for some drugs has added up to $1 billion."^[3] Although the United States comprises only 5% of the world's population, it accounts for 36% of worldwide research and development of pharmaceutical drugs.^[2] A study by Battelle Memorial Institute estimated that drug research will 'save' more than $750 billion in treatment costs for just five illnesses (AIDS, heart disease, cancer, Alzheimer's, and arthritis) over the next 25 years.^[2] Schizophrenia drugs which cost $4,500 per patient per year save more than $70,000 per patient per year by rendering hospitalization unnecessary.^[4]

Pharmaceutical companies argue that the prices they set are necessary in order to continue to fund research. 11% of drug candidates that enter clinical trials are successful and receive approval for sale.^[5] Critics of pharmaceutical companies point out that only a small portion of the drug companies' expenditures are used for research and development, with the majority of their money being spent in the areas of marketing and administration.^[6]

The AARP has published a series of studies suggesting that prescription drug prices are rising significantly faster than general inflation.^[7] The American Enterprise Institute, a conservative think tank, has criticized the methodology used as overstating drug price inflation.^[8]

Effects

The statistics reflect that prices of brand name drugs in the United States are significantly higher than in Canada, India, the UK and other countries, nearly all of which have price controls. Prices for generic drugs tend to be higher in Canada. The price differential for brand-name drugs between the U.S. and Canada has led Americans to purchase more than US$1 billion in drugs per year from Canadian pharmacies.^[9]

To save money, "U.S. Customs estimates 10 million U.S. citizens bring in medications at land borders each year. An additional 2 million packages of pharmaceuticals arrive annually by international mail from Thailand, India, South Africa and other points," reports the Washington Post.^[10] A few years ago, uninsured Americans would often purchase their cheaper medications from Canadian pharmacies. However, today, consumers can also shop at lower-cost online pharmacies in India, the UK, and other countries where they can save even more money—up to 60 to 80 percent or more savings off US prices.

Factors that increase prices

"Increased expenditures for prescription drugs may be complex to understand. Many factors contribute to the growth, including treatment advances from research and development, promotion of products in traditional and new ways, an aging population with more needs for prescription drugs, and increased insurance coverage for prescriptions. These factors and others contribute to the changes in price, utilization, and types of drugs used that drive expenditures for prescription drugs."^[11]

Prescription drug prices, in particular as part of Medicare, have become a political issue in the United States. Many third-party payers, such as Medicare, have consultants to negotiate prices so they can control their low costs. As an effect of this, pharmaceutical companies raise their retail prices in order to cover losses and increase profits.^[12]

Public Health Solutions

Providers and policy makers try to reduce these costs by substituting three-month for one-month supplies of medicines. A paper published in 2009 measured the differences in out-of-pocket and total costs among patients receiving the same prescription drug to treat a chronic condition and examined the patient and health system characteristics associated with the use of a three-month supply. After adjustment for potential confounders, this represented a 29% decrease in out-of-pocket costs and an 18% decrease in total prescription costs through the use of a three-month rather than a one-month supply.^[13]

See also

• Medicare Part D
• Medicare Prescription Drug, Improvement, and Modernization Act
• National pharmaceuticals policy
• Prescription costs
• Sri Lanka National Pharmaceuticals Policy

References