Why Do Drugs Cost More in the US?

And why can’t we just figure out why they’re cheaper in other countries & do the same here, rather than import them?

The most common reason I’ve seen given for this phenomenon is that other countries impose price controls. OK, then why not just impose them here? If we don’t do that but allow importation, as a practical matter few people will buy the non-price-controlled version anyway, which will force the US price down to the controlled price anyway. So why not be more direct about it and not have things shipped from other countries?

And if it’s about FDA oversight, then again, either give them up here or don’t import.

In sum, I can’t think of a reason why we would want to import things from other countries that could just as well be made here under the same conditions and for the same price. But I’ve not seen this issue raised in discussions of the matter - it’s all price versus FDA oversight.

So I must be missing something. What is it?

It’s not just a matter of implementing price controls: you forget that the drugs are priced even higher in countries with uncontrolled prices specifically because they are less profitable in controlled countries. In other words, if no country in the world had price controls, drugs would be a lot cheaper here and more expensive there.

If you were to artificially lower prices in the US, then that’s the same as raising them for some other guy, unless the whole world reduces prices, in which case making drugs is no longer profitable.

Needless to say, drug companies, (the biggest ones of which are based in the US) want to be profitable. And most people who are in charge of thinking about health care policy also want them to be profitable, otherwise they wouldn’t be inventing new drugs.

So it’s not quite that simple.

That doesn’t address the question. OK, let’s impose price controls here and make them less expensive here and more expensive elsewhere. Why import them?

I don’t understand what you’re asking, then. Imported drugs are obviously not subject to any hypothetical price controls in the importing country.

In normal markets, sellers want high prices, buyers low prices; an equilibrium is reached. In U.S. Health Care, both sellers and buyers want high prices; naturally high prices result; Americans subsidize overseas drug prices, while Big Pharm still makes huge profit.

(With all the attention health care costs get, it is surprising that this major problem – buyers wanting high prices – is ignored.)

Now when I say “buyers want high prices”, obviously I’m not speaking of uninsured citizens: they’ve too little spending power to matter. But I’m not speaking of insured citizens either: they don’t care what the prices are as long as their HMO or insurance company covers it.

HMO’s and insurance companies *** want health care to be expensive***. In the short run, your insurance company will be happy to cut costs by denying you coverage. But in the long run, their income is a fixed percentage of the health-care pot and they want that pot as big as possible.

What I’m asking is why not impose price controls here rather than relying on second hand price controls by importing drugs?

Even if this were true (which I doubt in the case of HMOs) it has nothing to do with the question. I’m not asking about the choice between the present situation and importing drugs. I’m asking about the choice between importing drugs and imposing the same price controls as are found elsewhere, here.

In most Western countries, they have UHC of some type, and the governments negotiate drug prices, which they can do because of their size. In the US, even the closest we have to that (Medicare/Medicaid) are legally unable to negotiate drug prices. You can thank Congress for that one.

Since this isn’t great debates, I’ll keep it down to this: drug patents do not allow for direct competition on price, this means that if you can make a drug that’s useful and has no alternatives, you can charge “whatever the market will bear”.

ALSO: other countries are not in the business of exporting drugs. Drug companies are.

There are other significant differences besides price controls in the situation between the US and Canada.

For example, there is various bargaining efforts on behalf of public drug insurance plans in Canada - this lowers the price overall, as major purchasers have major bargaining power. For reasons unknown to me the US public plans apparently decline to exercise such bargaining power.

There is also the existence of direct to consumer drug advertising in the US - DTC advertising is quite limited here in Canada. The drug companies spend a lot of money on DTC advertising campaigns, which raise costs for them (you may ask, if it raises costs, why do it? The answer is a bit of a prisoner’s dilemma type situation - if you fail to DTC advertise, you lose market share to those who do).

There are rules in some provinces in Canada regarding mandatory drug interchangeability, which basically require that pharmacists (in Ontario at least) dispense a generic version where one is available, unless the phsyician specifically orders otherwise.

All of these differences, collectively, and not just price controls, lower average drug costs. These differences would still exist and still mandate higher drug prices in the US even if price controls were eliminated in Canada.

The US doesn’t impose price controls because Americans don’t believe in that sort of thing – at least not enough Americans to ram it down the throats of the greedy bast- er, sorry. Because Americans don’t want drug companies to reduce their R&D spending and stop developing new drugs. Yeah, that’s the ticket.

We don’t import drugs because we don’t trust foreign drug companies or foreign drug regulators, and if if we did (which we don’t), it’s against the law. Because Canada is communist, or something. OK, it’s because importing low-priced drugs from Canada or other places would distort the market both here and there, possibly causing US prices to decline – and we can’t have THAT.

simple: because the market-clearing price in this country is higher.

complex: because the way we provide for healthcare coverage in this country results in absolutely no offsetting monopsony pressure to counteract the monopoly power that patent-holding pharmaceutical manufacturers wield. i.e. there’s no bilateral monopoly.

This is completely untrue. Do you honestly believe that drug companies would lower their prices out of the goodness of their hearts if drug prices were higher in the rest of the world? A business would have to be idiotic to do that.

Holy moly. One hundred percent wrong. This again?

I’ve done this before so I’ll just copy and paste:

Your scenario assumes flexible demand for the commodity (i.e. if candbars are too expensive people won’t buy them). For several obvious reasons those same pressures don’t apply to prescription drugs.

They have no competition. They patent drugs and are free to sell them for whatever they can get. I read last week that when the patent runs out they will payoff a manufacturer not to import a generic. The company get millions for doing nothing while the drug company makes billions selling overpriced drugs.

Drug prices in the United States are not high.

What’s confusing you is that the list price of the drug in the United States is high, but no one pays list price! Well, no one of any importance…

It’s quite simple, let’s say MercMedGlaxSmithBarney creates a drug called Whatadorfilin and claims the list price is $54.95 per little blue pill. Well, your insurance company negotiates with MercMedGlaxSmithBarney and only pays $5.95 per pill. The Canadian government does the same thing too which is why drugs are cheaper in Canada.

In fact the only person who has to pay that $54.95 price is the poor shlub who was stupid enough to be poor and uninsured. What a doofus. Maybe the next time he’ll know better and be born to more well off parents.

Yes they are, a lot of the drugs sold in different European countries are imported and they have to be sold at the price marked by that specific government.

Lots of drugs don’t have a single country of origin; I worked for a year for one of the biggest pharma companies and we’d have stuff like each step of a 20-step chemical reaction being done in a different country (I’m not even talking about countries close by, there would be things like one step in France, the next in China, the next in Germany - and yes, that’s a real example). Then the compounds which had been made like that would be turned into pills in another place, then they would get boxed in yet another place, then they would get shipped to the country where they’d been sold but another order might “overtake” that one, which if we were talking Europe wouldn’t just mean “call those truckers and send them elsewhere:” the pills would need to get repackaged!

Drugs made by that company and sold in the US would be pilled and packaged in the US, but their components had traveled more than a British Airways pilot.

Some of my coworkers had been dealing with that logistic nightmare for five years and still hadn’t been able to get anybody to explain why it made sense, specially the “overtaking” part. The chemistry part could make sense in terms of “well, that step can only be done in one of our factories, which happens to be in China,” but why would it be considered better to take your shipment to Spain, divert it to a packaging factory, open the blisters, repackage in Italian blisters, repack in Italian boxes with an Italian prospectus and send it to Italy while a new shipment went from Germany to Spain (did I lose you yet?) than it would be to let the Spanish shipment get there while packaging and sending a fresh batch from Germany to Italy? I have no idea, but it happened all the time.

A drug’s prices must cover its costs, though, or else the company will decline to produce it. I’m guessing (and I may of course be wrong), but I suspect that for most widely-used drugs, the US market is large enough for the company to recoup its R&D and other costs, such that overseas sales are largely pure profit, even at reduced prices. So you’re right that it doesn’t really matter that much whether Canada raises or lowers its prices, because the company is still making money regardless. The reverse is not true, though: if the US mandated that a drugmaker charge Canada-level prices domestically, such that the company would not be able to recover its R&D costs, presumably it’s just not going to develop that drug.

Size can’t be the explanation. United Health Group alone has nearly as many people as Canada, for instance.

Drugs are more expensive here because the US is subsidizing medical development for the rest of the world. R&D for new drugs is the bulk of the cost (at least relative to manufacturing and distribution). Once a drug is developed, most of the money is gone as a sunk cost - the actual cost of producing and distributing pills is relatively miniscule. But whatever the use of their drug - it’s valuable to someone, so they charge as much as they can for it, with a lot of the proceeds going to recouping the cost (and of course making a profit)

So let’s say they’re charging 5 a pill in the US for a pill that actually costs .20 to manufacture, but has hundreds of millions of research dollars sunk into it. Each individual pill being sold has a high profit margin on it obviously since the cost of manufacture is so low, but factoring in the high costs of development, it takes a while for the drugs to make the investment back. Now… what if another country (with a single payer government buyer) comes in and says "Okay, we’ll pay 1 per pill, or we won't use the pill at all"? Now they aren't paying their fair share of the deal, but the manufacturer still makes a .80 profit on each pill anyway, so it only makes sense to sell them to the foreign governments - they would be losing potential profit if they didn’t. But at the same time, it was the $5 price paid by the US that really funded the development of the drug - the $4/pill that the other countries are saving makes them a free rider and the US is subsidizing the rest of the world.

So if we were to negotiate price controls, it would be harder for drugs to recoup their investment, and pharmaceutical companies would become more conservative … they would be less likely to try new directions when finding new cures because there’s a high risk that nothing comes out of the research, and the reward if they end up making some new miracle drug is reduced. The quality of drugs worldwide would decline. The irony of this is that the rest of the world is laughing at our health care system and admoninishing us and telling us to switch to single payer, without realizing that if that were to happen, they wouldn’t be free riders (to the same degree) anymore, and their costs of drugs would go up and the development pace of new drugs would go down. For purely selfish reasons, the rest of the world should be hoping we keep our current system.