Prescription drug prices in the United States

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Research shows that prescription drug or medicine prices in the United States are among the highest in the world, including other developed countries. Time magazine stated "The prices Americans pay for prescription drugs, which are far higher than those paid by citizens of any other developed country, help explain why the pharmaceutical industry is — and has been for years — the most profitable of all businesses in the U.S." In the annual Fortune 500 survey, the pharmaceutical industry topped the list of the most profitable industries, with a return of 17% on revenue.[1] National expenditures on pharmaceuticals accounted for 12.9% of total health care costs, compared to an OECD average of 17.7% (2003 figures).[2] The high price of prescription drugs is one of the major areas of discussion in the U.S. health care reform debate.

Potential Causes[edit]

Although the cost of manufacturing a drug is relatively low, the cost of developing a new drug is relatively high. The United States' high drug prices allow the U.S. pharmaceutical industry to invent a disproportionately high[?] [clarification needed] share of all drugs.[3] Herper states that "A single clinical trial can cost $100 million at the high end, and the combined cost of manufacturing and clinical testing for some drugs has added up to $1 billion."[4] Although the United States comprises only 5% of the world's population, it accounts for 36% of worldwide research and development of pharmaceutical drugs.[3] A study by Battelle Memorial Institute estimated that drug research will 'save' more than $750 billion in treatment costs for just five illnesses (AIDS, heart disease, cancer, Alzheimer's, and arthritis) over the next 25 years.[when?][3] Schizophrenia drugs which cost $4,500 per patient per year save more than $70,000 per patient per year by rendering hospitalization unnecessary.[5]

Pharmaceutical companies argue that the prices they set are necessary in order to continue to fund research. 11% of drug candidates that enter clinical trials are successful and receive approval for sale.[6] Critics of pharmaceutical companies point out that only a small portion of the drug companies' expenditures are used for research and development, with the majority of their money being spent in the areas of marketing and administration.[7]

The AARP has published a series of studies suggesting that prescription drug prices are rising significantly faster than general inflation.[8] The American Enterprise Institute, a conservative think tank, has criticized the methodology used as overstating drug price inflation.[9]


The statistics reflect that prices of brand name drugs in the United States are significantly higher than in Canada, India, the UK and other countries, nearly all of which have price controls. Prices for generic drugs tend to be higher in Canada. The price differential for brand-name drugs between the U.S. and Canada has led Americans to purchase more than US$1 billion in drugs per year from Canadian pharmacies.[10]

To save money, "U.S. Customs estimates 10 million U.S. citizens bring in medications at land borders each year. An additional 2 million packages of pharmaceuticals arrive annually by international mail from Thailand, India, South Africa and other points," reports the Washington Post.[11] A few years ago, uninsured Americans would often purchase their cheaper medications from Canadian pharmacies. However, today, consumers can also shop at lower-cost online pharmacies in India, the UK, and other countries where they can save even more money—up to 60 to 80 percent or more savings off US prices.

The pharmaceutical industry has thousands of lobbyists in Washington, D.C., that lobby Congress and protect their interests. The pharmaceutical industry spent $855 million, more than any other industry, on lobbying activities from 1998 to 2006, according to the non-partisan Center for Public Integrity.[12]

Factors that increase prices[edit]

"Increased expenditures for prescription drugs may be complex to understand. Many factors contribute to the growth, including treatment advances from research and development, promotion of products in traditional and new ways, an aging population with more needs for prescription drugs, and increased insurance coverage for prescriptions. These factors and others contribute to the changes in price, utilization, and types of drugs used that drive expenditures for prescription drugs."[13]

Prescription drug prices, in particular as part of Medicare, have become a political issue in the United States. Many third-party payers, such as Medicare, have consultants to negotiate prices so they can control their low costs. As an effect of this, pharmaceutical companies raise their retail prices in order to cover losses and increase profits.[14]

Public Health Solutions[edit]

Providers and policy makers try to reduce these costs by substituting three-month for one-month supplies of medicines. A paper published in 2009 measured the differences in out-of-pocket and total costs among patients receiving the same prescription drug to treat a chronic condition and examined the patient and health system characteristics associated with the use of a three-month supply. After adjustment for potential confounders, this represented a 29% decrease in out-of-pocket costs and an 18% decrease in total prescription costs through the use of a three-month rather than a one-month supply.[15]

See also[edit]


  1. ^ Barlett DL Steele JB (2004-02-02). "Why Drugs Cost So Much". TIME magazine. Retrieved 2013-03-31. 
  2. ^ "OECD Health Data, How Does the United States Compare" (PDF). Organisation for Economic Co-operation and Development. Retrieved 2007-04-14. 
  3. ^ a b c The Process of New Drug Discovery and Development, Second Edition, Charles G. Smith and James T. O'Donnell, 2006, p. 422, published by Informa Healthcare
  4. ^ Herper, Matthew. "The Truly Staggering Cost Of Inventing New Drugs". Forbes. Retrieved 29 March 2013. 
  5. ^ Goddamn the Pusher Man, Reason, April 2001
  6. ^ Nature Reviews Drug Discovery, 2004 (3), 711–716.
  7. ^ Why Are Drug Prices So High?, PSC/CUNY
  8. ^ David Gross, Leigh Gross Purvis and Stephen W. Schondelmeyer, "Trends in Manufacturer Prices of Prescription Drugs Used by Older Americans", AARP, March 2007
  9. ^ Joseph Antos and Thomas F. Wildsmith, "Inflated Claims about Drug Prices", American Enterprise Institute, July 8, 2005
  10. ^ Morgan, S.; Morgan, Steven and Hurley, Jeremiah (2004-03-16). "Internet pharmacy: prices on the up-and-up". CMAJ 170 (6): 945–946. doi:10.1503/cmaj.104001. PMC 359422. PMID 15023915. Retrieved 2007-07-11. 
  11. ^ Millions of Americans Look Outside U.S. For Drugs, Washington Post, Oct. 23, 2003
  12. ^ Senators Who Weakened Drug Bill Got Millions From Industry, USA Today, May 10, 2007
  13. ^ Kreling, David H. "Why Are Prescription Drug Costs Rising?". Wisconsin Family Impact Seminars. p. 13. Retrieved 29 March 2013. 
  14. ^ Pearson, Susan. "A Need for Government Intervention? Prescription Drug Prices". Virginia Tech. Retrieved 29 March 2013. 
  15. ^ Rabbani, A; Alexander GC (2009). "Cost savings associated with filling a 3-month supply of prescription medicines.". Applied Health Economics and Health Policy 7 (4): 255–264. doi:10.2165/11313610-000000000-00000. PMID 19905039. Retrieved 11/10/2011.  Check date values in: |accessdate= (help)