Are drug prices higher in the US than in other countries?

Conventional wisdom holds that the prices of pharmaceuticals are higher in the US than in other countries. But is that really the case? And if so, by how much?

Which price?

The question we need to answer is “which price” do you mean? There is the manufacturer wholesale price (i.e., gross price) which is how much wholesalers pay for drugs from manufacturers. Then, there is the retail gross drug price which is how much retail pharmacies pay for drugs after buying them from wholesalers with some additional mark-up. Yet another component of price are rebates and discounts that drug manufacturers pay to pharmacy benefit managers after the fact. Taking into account these discounts, we get the net price. Of most interest to patients is patient out-of-pocket cost which depends on: (i) whether someone has insurance, and (ii) how much of the drug’s cost insurance will cover. Benefit designs may include complicated rules with deductibles, coinsurance, co-payments and drugs on different formulary tiers.

For the purpose of this exercise, let’s focus on gross and net drug prices to ignore any differences in patient cost due simply to health insurance benefit design.

The answer: Yes, drugs in the US are the most expensive.

Now that we have the definitions out of the way, let’s take a look at a recent Government Accountability Office (GAO) report that compares drug prices in the US, to those in Australia, Canada and France. GAO examined 41 brand-name, single-source (i.e., no generic or biosimilar availability) prescription drugs that ranked highest in terms of U.S. Medicare Part D expenditures in 2017. The analysis accounted for rebates in the US using either Part D rebate data or an alternative 43% general discount. Rebates and discount data for other countries was not available to GAO. Although rebates and discounts are generally larger (in both absolute and relative terms) than in other countries, the GAO method only applies the rebates to the US; thus differences in prices across countries that is estimated is likely conservative.

Based on the GAO analysis, both retail and manufacturer drug prices are 2.5 times higher in the US than Canada and about 4 times higher in the US than France or Australia.

Where does drug R&D occur?

Another interesting finding from the GAO report was where most drug development occurred. GAO found that the US had a much larger share of pharmaceutical research and development spending occur within their borders than Australia, Canada or France combined (both in absolute terms and as a share of GDP).

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