U.S. Prescription Drugs Cost Highest in the World, By Far

A RAND study shows the gap is even wider for brand-name drugs, with U.S. prices averaging 3.44 times those of 32 other nations.

U.S. consumers pay 2.56 times more on average for prescription drugs than consumers in 32 other nations, a RAND Corporation report released Thursday shows.

That gap is even wider for brand-name drugs, with U.S. prices averaging 3.44 times those of other nations in the  Organisation for Economic Co-operation and Development, RAND found.  

"Brand-name drugs are the primary driver of the higher prescription drug prices in the United States," said lead author Andrew Mulcahy, a senior health policy researcher at nonprofit, nonpartisan RAND.

"We found consistently high U.S. brand name prices regardless of our methodological decisions," he said.

Brand-name drugs accounted for 11% of U.S. drug sales volume and 82% of the spend.

Conversely, U.S. generic prices are 84% of the average paid in other nations, make up 84% of U.S drug sales by volume, but account for only 12% of the spend.

The lower generic costs did not offset the higher brand-name costs in the United States, RAND found.

"For the generic drugs that make up a large majority of the prescriptions written in the United States, our costs are lower," Mulcahy said. "It's just for the brand name drugs that we pay through the nose."

PhARMA offered a lengthy rebuttal to the points made in the RAND study, noting that "international comparisons often compare the high list or invoice price in the United States to artificially low prices set by governments in other countries."

The RAND analysis relies on 2018 data – the latest available ­­­– and compares U.S. prices with those of other countries in the OECD.

The researchers estimate that the 32 OECD nations they studied spend $795 billion on prescription drugs, with the U.S. accounting for 58% of sales, but only 24% of the volume.

The analysis used manufacturer prices because net prices after negotiated rebates and other discounts are applied are not systematically available.

Even after adjusting U.S. prices downward based on an approximation of these discounts, however, RAND found that U.S. prices are still substantially higher than those in other countries.

Drug spending in the U.S. grew 76% between 2000 and 2017, by some estimates accounts for 10% of all U.S. healthcare spending and is one of the fastest-growing cost-drivers in healthcare.

The study was commissioned by the Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation.

PhARMA Responds

The drug makers' association noted that, by focusing on invoice prices, RAND's analysis "failed to account for savings negotiated by insurers and pharmacy benefit managers, as well as mandatory discounts like those provided by manufacturers through Medicaid and 340B."

"In the United States, we rely on a competitive market to control costs and the new RAND study demonstrates that our system is largely doing just that," PhARMA said in an email to HealthLeaders.

“While the authors admit their report doesn’t reflect the lower net prices paid throughout the U.S. healthcare system, it does recognize that sometimes Americans do pay more, but when we do it is for innovative, lifesaving medicines, not generic medicines that have been on the market for a while."

"This helps ensure Americans have access to the latest medical advances. Here in the United States, nearly 90% of new medicines launched since 2011 are available, compared to just 44% on average in the other OECD countries in the study, and Americans get access to new medicines years earlier on average."

PhARMA said existing price disparities between the United States and other countries would be best remedied with trade agreements and enforcements.

"Policymakers should also pursue commonsense reforms to fix our system that will lower out-of-pocket costs for patients like providing an annual cap on patient out-of-pocket costs in Medicare Part D, lowering patient cost sharing and allowing patients to spread their costs throughout the year,” PhARMA said.

AHIP Reaction

America's Health Insurance Plans, however, leaped on the newly released study as evidence of "how out-of-control drug prices are."

"The problem is the price, which is set and controlled solely by drug makers," AHIP said in a media release.

"Health insurance providers are your advocate, working hard to negotiate lower prices for patients and consumers. But drug companies keep raising their prices year after year. Big Pharma has already increased prices for at least 582 brand-name drugs, in the midst of a global pandemic that is hurting hardworking American families."