A Growing Monster: The Secrets Behind Increasing Pharmaceutical Prices

For every dollar spent in other countries, the United States spent 2.78 dollars on drugs in 2022 [1]. This ranged from being 172 percent of the prices in Mexico to 1028 percent of the prices in Turkey. Most concerningly, this gap is only continuing to increase. This not only impacts those who must pay out of pocket for medications, but also taxpayers and businesses that have to cover the cost of federally funded programs such as Medicaid and Medicare, therefore affecting the entire economy [2]. What is causing this disparity in drug prices in the US versus internationally?

The problem is not with general pharmaceutical drugs, but a specific classification of drugs. In the pharmaceutical industry, drugs are classified as either “brand-name” or “generic drugs”. While both are therapeutically equivalent, brand-name drugs are patented and are often more expensive to consumers. In the US, brand-name drugs make up 72% of prescription spending, yet only 10% of dispensed prescriptions [3]. This 10% of brand-name drugs results in the United States having high drug prices. In fact, US prices for generic drugs are only 67% of the prices of other countries, making them cheaper than other countries [1].

Upon the creation of a drug, pharmaceutical companies are given a period where they are the only ones allowed to sell and produce their drug. After this period, generic drugs can be created and sold by other companies. Historically, this period of exclusivity was to allow drug companies to reap the monetary profits to compensate for the research and development associated with the drug. However, the monster that is the pharmaceutical industry has grown increasingly greedy, opting to sell medications at the highest possible price.

Other than New Zealand, the US is the only country that allows pharmaceutical companies to advertise prescription drugs directly to consumers. While direct-to-consumer (DTC) marketing is supposed to make the public better informed, DTC advertising contributes to a whole array of problems, including higher prescription drug costs. Pharmaceutical DTC marketing spending increased from 11.9% to 32.0% of total spending from 1997 to 2016 [4]. This does not even include the money pharmaceutical companies use for marketing to health care professionals. Overall, this enormous increase in money being spent on forms of marketing is increasing the price of brand-name drugs.

While it is evident that there is a problem with the cost of prescription medication, the solution is not yet clear. In other countries, universal health insurance systems have shifted the burden of high drug costs to the government, causing many regulations in the pharmaceutical industry. Some forms of regulations include product-by-product price control (in France), limits on insurer reimbursement prices (in Germany and Sweden), and profit control (in the United Kingdom) [5]. This resulted in France, Germany, Sweden, and the United Kingdom experiencing minimal drug price fluctuation when adjusted for inflation from 1985 to 1991, whereas in the United States, pharmaceutical prices increased at an annual rate of twice the inflation rate during this period.

The problem of high prescription costs is a result of a lack of regulation and a set of unique circumstances that set the United States apart in an unfortunate way. The use of DTC advertising increases pharmaceutical companies' spending, and thus the price of medication. The lack of universal healthcare leads to high prescription costs becoming an individual consumer problem as opposed to a national problem. If no fundamental government change is made, the price of prescription medication will only continue to grow monstrously large. 

Reviewed by: Eva Samborski

Designed by: Jennifer Liu

References: [1] Mulcahy, A. W., Whaley, C. M., Gizaw, M., Schwam, D., Edenfield, N., & Becerra-Ornelas, A. U. (2021). International prescription drug price comparisons: Current empirical estimates and comparisons with previous studies (RR-2956-ASPEC). RAND Corporation. https://www.rand.org/pubs/research_reports/RR2956.html 

[2] Baker D. E. (2017). High Drug Prices: So Who Is to Blame?. Hospital pharmacy, 52(1), 5–6. https://doi.org/10.1310/hpj5201-5  

[3] Kesselheim, A. S., Avorn, J., & Sarpatwari, A. (2016). The high cost of prescription drugs in the United States: Origins and prospects for reform. JAMA, 316(8), 858–871. https://doi.org/10.1001/jama.2016.11237 

[4] Schwartz, L. M., & Woloshin, S. (2019). Medical Marketing in the United States, 1997-2016. JAMA, 321(1), 80–96. https://doi.org/10.1001/jama.2018.19320  

[5] Gross, D. J., Ratner, J., Perez, J., & Glavin, S. L. (1994). International pharmaceutical spending controls: France, Germany, Sweden, and the United Kingdom. Health care financing review, 15(3), 127–140.