If asked, the average person probably couldn’t tell you exactly why Americans pay more for prescription drugs than people in other countries. This is because the answer is both simple and complex. The simple answer is that there is no regulatory body in the U.S that negotiates drug prices with the manufacturer. The complex answer is how this affects the other part.
The main reason why drug prices are so high is because the U.S drug prices are not regulated. This allows drug companies to charge whatever they like regardless of how urgently people need it or how essential it is for patient care.
Other countries such as Canada and the EU have government bodies that control how much a drug should cost and how much they are willing to pay for it. If a drug is prohibitively expensive, they will likely use a cheaper drug that has comparable results.
Most countries also ban advertisements for drugs on television. People living outside the U.S are often surprised at how common commercials are for prescription drugs and urging individuals to “talk to their doctor” about a specific product. This drives a demand for specific (and often expensive) drugs instead of an affordable alternative.
There is also a stigma about generic medications. Since manufacturers and their products are ubiquitous on TV and in advertisements, generic products are often ignored. Their relative affordability is often considered suspicious as well. There is an inherent bias that a more expensive product has more intrinsic value when, in reality, the products work the same.
Brand products are only more expensive due to the cost of developing and marketing the drug for sale. The original manufacturer does not have an incentive to make drugs affordable because they need to recoup the cost of creating it. While they do have exclusivity over the molecule during the patent period, they can keep the prices high as the drug is often synonymous with treating the condition.
Keeping drug prices high also encourages investment. A drug that is given away for free is not enticing for venture capitalists. They want something profitable. The fact that a successful drug is profitable encourages funding for innovative products. These profits can potentially fund future research projects for new drugs. Whether or not consumers ought to bear the responsibility of funding a drug company’s next project is a different issue entirely.
Other companies are able to invest in research and development without gouging their consumer base. Why pharmaceutical drug companies are exceptions is unclear. Currently Americans spend approximately $460 billion dollars on drugs where other countries spend around half as much.
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