US drug prices: high for brand names and low for generics

Brand name drugs in the United States cost more than in other countries. The main reason is that the United States has a fairly free market, although there are some kind of restrictions on drug pricing, whereas in other countries it is common for the government or National Health Service to agree or give pharmaceutical companies a sum they agree to. – Neglect offer: Charge a lower price. Otherwise, the drug will not be prescribed in your country.

However, a little known fact is that generic drugs are sold cheaper in the United States. A’s discussionlex Tabarrok from the invaluable Marginal Revolution website The following person sent me an article: Andrew W. Mulcahy, Daniel Schwam, and Susan L. Lovejoy provide some basic facts in “Comparing International Prescription Drug Prices: Estimates Using 2022 Data” (Rand Health QuarterlyJune 2024). They write:

U.S. prices for branded original drugs were 422% of comparable country prices, while U.S. non-branded generics, which account for 90% of U.S. prescriptions, were cheaper, averaging 67% of comparable country prices. Only 41% of prescriptions are for non-branded generics. U.S. prices for branded drugs remained 308% of prices in other countries, even after adjusting to account for rebates paid by pharmaceutical companies to U.S. payers and pharmacy benefit managers.

Below is a figure summarizing the results by country: Numbers express U.S. drug prices as a percentage of prices in other countries (overall, brand name drugs, and generic drugs).

When it comes to the U.S. health market, there’s room for outrage here. Having incentives to develop new and better drugs is a good thing. The health benefits can be enormous. But we live in a world where the U.S. market provides incentives for drug development, while governments around the world are “free” to exploit these drug development incentives at a much reduced rate. This does not seem right or fair (just as it is right or fair for many countries to rely on American military spending for their security needs). But a solution that would require the U.S. government to control the prices of brand-name drugs would be worse than unfair as it would greatly reduce the incentives to develop new and improved drugs. That would obviously be harmful.

It’s also worth remembering that 90% of actual U.S. prescriptions involve generic drugs, making this one of the areas where U.S. consumers pay less for health care.