Florida’s plan to save money by importing drugs from Canada, approved by the Food and Drug Administration this month, has renewed interest in the cost of prescription drugs in the United States.
Research has consistently found that drug prices in America are much higher than in other wealthy countries. In 2018, those rates were nearly double those in France and Britain, even when accounting for deductibles that can significantly reduce the amount American health plans and employers pay.
“The US market is the bank of pharmaceutical companies,” said Amit Sarbatwari, a pharmaceutical policy expert at Harvard Medical School. “There is a strong feeling that the best place to try to extract profits is the United States, because of its current system and its dysfunction.”
Here are six reasons why drugs are so expensive in the United States:
1. No central negotiator wants to withdraw.
Other rich countries rely on a single negotiating body – usually the government – to decide whether to accept the price a drug company wants to charge. In the United States, negotiations with drug makers are divided among tens of thousands of health plans, leaving buyers with weak bargaining power.
Other countries are also conducting careful analyzes of how much additional benefit a new drug offers over drugs already on the market – and at what cost. If the cost is too high and the benefits are too small, these countries will be more willing to reject any new drug.
“Our lack of cohesion in negotiating is the main reason we’re paying more than other countries — but also an unwillingness to negotiate as hard,” said Stacey Dusetzina, a health policy expert at Vanderbilt University School of Medicine.
The Inflation Control Act, passed in 2022, allowed Medicare to negotiate directly with drug companies over prices for a small number of drugs years after they entered the U.S. market. Health policy analysts say this is a start, but much broader negotiating power is needed to bring about change in drug prices overall.
Drug companies claim that higher prices come with an added benefit: Industry-funded analyzes have found that patients in the United States get their drugs faster, and with fewer insurance restrictions, than patients in other countries.
2. There are no price controls.
Some countries set limits on how much you will pay for medicines. France, for example, sets a cap on the sales growth of pharmaceutical companies: if sales exceed this cap, the government gets a discount.
Pharmaceutical companies in the United States have avoided legal restrictions on prices for patients covered by commercial insurance and on introductory prices when drugs first enter the market.
“Drugs are expensive in the United States because we allow them to be,” said Michelle Mello, a professor of health law and policy at Stanford University. “We designed a system in terms of drug costs that is all engines, not brakes.”
3. The system creates perverse incentives.
Pharmaceutical companies aren’t the only ones making money from rising drug costs. Doctors, hospitals and a host of intermediaries also see higher revenues when costs rise.
One example: Under Medicare policies for some drugs, doctors pay upfront for drugs they give patients intravenously in their offices, such as chemotherapy. To get their costs reimbursed, they send a bill to Medicare that includes the cost of the drug and a percentage of that cost, determined by Medicare, for their overhead. This billing system creates an incentive for the physician to choose a higher-priced drug. For example, a Medicare rate of 6 percent on a $10,000 drug would pay $600 — much more than the $6 fee paid for a $100 drug injection.
Experts also see inconsistent incentives stemming from pharmacy benefit managers, or PBMs, larger companies that negotiate with manufacturers on behalf of employers, and health plans that pay most prescription drug bills.
Drug manufacturers make more money from fees from manufacturers when the sticker price of a drug is higher. Sometimes they ask patients to take a higher-priced drug even when a cheaper alternative is available.
4. The system is fragmented and complex.
Pharmaceutical industry executives often complain that they are unfairly blamed for rising prices, while other parties, including PBMs and insurance companies, benefit from a growing share of drug spending and burden patients with high out-of-pocket costs. .
“The United States is the only country that allows middlemen, such as PBMs, to profit from drugs without oversight,” said Alex Shriver, an official at the Pharmaceutical Research and Manufacturers of America, or PhRMA, the pharmaceutical industry’s main lobbying group.
Manufacturers keep only half of the money health care payers initially spend on prescription drugs before rebates are applied, according to a 2022 study funded by PhRMA.
The system is so confusing that doctors and patients trying to choose between seemingly similar medications have no easy way to determine their actual cost at the pharmacy.
Even researchers have difficulty analyzing the system — in particular, the complex deals that take place between drug makers, brokers, and insurers — as they try to identify problems and come up with solutions.
5. Patent games keep prices higher for longer
Around the world, countries issue patents to pharmaceutical companies that grant them temporary monopolies during which lower-priced competitors are unable to enter the market. But in the United States, pharmaceutical companies have been particularly successful at finding ways to prolong monopoly periods, through tactics such as patent stacking to protect inventions that are only tangentially related to the drug in question.
For example, pharmaceutical company AbbVie delayed competition for its blockbuster anti-inflammatory drug Humira by more than four years in the United States compared to Europe. Patents were a key factor: A number of AbbVie’s patent applications were rejected by patent examiners in Europe or were canceled after being challenged, according to an analysis by the Medicines, Access and Knowledge Initiative, a nonprofit that tracks drug patents.
AbbVie declined to comment for this article.
6. Drug prices are what the market will bear.
Pharmaceutical industry executives often say that their prices reflect the value their products provide to society. For example, a one-time treatment worth $3 million might be a bargain if it ends up avoiding $10 million in hospital bills and lost wages.
But comparison with other valuable resources shows how this model can drive prices out of control. “If we allow water utilities to charge the full value of water in our lifetime, society will collapse very quickly,” said Christopher Morton, a pharmaceutical law expert at Columbia University.
Pharmaceutical companies also say that drug prices reflect the huge and rising costs of conducting clinical trials and the need to recoup expensive investments in failed drugs. But academics have found no relationship between the amount pharmaceutical companies spend on research and the amount they charge.
The reality, experts say, is that companies set their prices at the highest level the market can bear.
Reid Abelson contributed reporting.