Why are drug prices in the U.S. so high?
The U.S. has, by a significant margin, the highest drug prices in the world.
U.S. consumers pay incredibly high out-of-pocket costs fueled by both the U.S.’s large uninsured population, and its higher cost-sharing requirements — both products of the U.S.’s less than sturdy welfare state.
Why is this the case? What can we as a society do to solve this problem?
The United States is exceptional amongst many first-world societies in that it does not regulate or negotiate the prices of new prescription drugs when they come onto the market.
Other countries will task a government agency to meet with pharmaceutical companies and negotiate for an appropriate price.
Such negotiations also include whether or not the new drugs represent any improvement over the pre-existing drugs on the market. This includes studying reams of data about a drugs’ risks and benefits.
In contrast, the United States allows pharmaceutical companies to do as they please, allowing them to set their own prices so long as their product is deemed safe by the FDA to come on the market.
These higher prices lead to higher copays, and in many cases makes life-saving medications unaffordable to most Americans.
The obvious solution — to lower the drug prices has a quid pro quo: lower drug profits mean lesser profits for pharmaceuticals which would make them less desirable to investors, and by extrapolation, deplete their funds for researching new cutting edge drugs.
The status quo, although not in the best interest of the average American, nonetheless has the effect of preserving a revenue stream to drug companies’ research and development funds preserving the U.S. ‘s innovative pharmaceutical edge.
So how do other countries rein in their pharmaceutical costs?
When a pharmaceutical company in another first-world country wants to sell a new drug on the market, they must approach their respective governmental drug agencies that makes decisions about drug coverage and prices.
These agencies will evaluate two aspects of a new drug brought to their attention.
The first is whether or not said government is interested in buying the new drug, and second is how much they will pay for it.
In so-doing, a drug agency will often examine whether or not a new drug is enough of an improvement on the pre-existing drugs in the market in order to warrant a higher price.
If the governmental drug agency believes that buying the drug is in the interest of the national as a whole, it will make a recommendation to the country’s national healthcare system as to whether or not the said new drug is a worthwhile addition to the currently existing market while also making a pricing recommendation.
The reason for this strange ‘price-setting’ phenomenon otherwise alien to Americans is that many other countries in the first world perceive the price of drugs to be a public utility.
In contrast to say computers or clothes, ensuring for a reasonable price of drugs is vital to ensuring that medical treatment in general remains affordable for all citizens regardless of income.
Medication is treated differently because many consumers’ lives literally depend on it.
