Drugs Cost Over Twice As Much in the U.S. Than in Other Countries, Report Finds

Americans pay much more for their medications than do people in other countries, a problem that has been discussed and debated, and that is expected to continue. A new report has found that prices in the United States average 2.56 times prices in 32 other countries.

U.S. prices averaged 3.44 times the prices for brand-name products compared to the same products in those other countries. However, the price for generic drugs in the United States is lower than elsewhere, which brought the overall price average down. These findings are from a report on international drug prices from the RAND Corporation, a nonprofit research organization. It was sponsored by the U.S. Department of Health and Human Services.

The rise in prices has been steady. Between 2000 and 2017, spending on medications in the United
States rose by 76%, the report stated. The costs are expected to rise faster than spending in other areas of health care.

Average prices for generic drugs in the United States were only 84% of the average prices paid
elsewhere. However, although 84% of the drugs sold in the United States are generic products, they only account for 12% of spending on all medications, which reduces their impact on overall prices.

Medication costs make up only about 10% of overall U.S. spending on health care, according to the
report. But “drug prices are what people hone in on,” lead report author Andrew Mulcahy, PhD, senior health policy researcher with RAND, tells Verywell. Patients get the sticker shock: The prices are visible if they have to pay the whole price out of pocket or if there are large copayments for branded drugs. Drug costs are more obvious than costs in other areas of health care such as doctor visits or hospitalizations, where the original cost is not as apparent.

Brand Names Are the Budget-Busters

The higher over-all prices for medications in the United States are driven by brand-name drugs, Mulcahy says. Those higher average prices are primarily because of a class of medications called biologics, which include hormones like insulin and other products derived either from natural
sources or created through biotechnology. They are used to treat cancer and autoimmune conditions like rheumatoid arthritis, and they can cost tens of thousands of dollars a year. Some of these drugs have generic competitors—called biosimilars—that are less expensive but the majority of them do not, Mulcahy points out.

The bright news in the report is that policies that increase the use of generic drugs are working.

“We’ve had policies in place to get generics on the market and competing with each other,” Mulcahy says. “Most drugs that are available generically have three to 10 competitors.” That competition keeps the prices low. When a drug does not have a generic competitor, the manufacturers can price them however they want to, he says.

In addition, health insurers push healthcare professionals to prescribe generics as often as possible. Insurance plans frequently may cover the entire cost of a generic but charge higher copays for the brand name drug. In most areas of the country, a pharmacist can fill a prescription with a generic version if the prescriber writes it for the brand name.

A Complicated Calculation

Analyzing drug prices is a complicated subject to tackle, Mulcahy says. The RAND report compared 2018 data on drug prices from 32 other countries that that are part of the Organization for Economic Co-operation and Development. The same drug might not be available in other countries.

Other factors, such as manufacturers’ prices versus retail prices, mean that comparisons depend on what price data was collected, what drugs were included, and how the statistics were evaluated. For the RAND report, Mulcahy and his co-authors calculated price indexes using manufacturers’ prices, since net prices may depend on factors such as discount programs or rebates that may not be available elsewhere.

There have been several reports over the years that compared drug prices in the United States and other countries. The numbers on drug costs in these reports vary greatly depending on what methods are used to collect the price data and which set of drugs is evaluated, Mulcahy says

For example, the Ways and Means Committee of the House of Representatives issued a report in 2019 that found that U.S. prices for brand-name drugs were nearly four times higher than in 11 other countries. Some drugs were priced as much as 67 times more than abroad.

Where Do We Go From Here?

How to lower the costs of medications—or at least control the rise in costs—has been debated for many years, Mulcahy says. It has been a key element in many proposals for healthcare reform. In 2020, the Trump Administration issued executive orders aimed at controlling drug prices, including one that tied prices to those in other countries, but the Biden Administration has put a hold on several executive orders including these until they have been reviewed.

“There is a lot of political movement in this area,” Mulcahy says. The fact that people are debating how to reference drug prices at all is something that he would not have expected even five years ago, he says.