US Drug Pricing Outstrips International Levels, Drives Spending

Prescription drug spending in the US drives healthcare spending primarily due to high US drug pricing, not necessarily because of the number of drugs that providers prescribe use, a Commonwealth Fund report shared.

“High US drug prices are a financial strain for patients, employers, and state and federal governments,” the report began. “In the following charts, we present the findings from a number of studies on prescription drug costs and spending in the United States with other high-income countries to reveal the main culprit: high US prices for brand-name drugs.”

The researchers used the Commonwealth Fund’s 2020 International Health Policy Survey, three decades’ worth of data from the Organisation for Economic Co-operation and Development (OECD), the International Collaborative on Costs, Outcomes, and Needs in Care (ICCONIC) administrative claims and registry data for 2020, and IQVIA’s MIDAS database for 2018.

The US spent $464 billion in pharmaceutical drug sales in 2018. The researchers compared this to the OECD, which consists of large, well-resourced nations like the United Kingdom, Germany, France, and Canada. Combined, the OECD nations spent $331 billion on drugs in 2018. 

To summarize, 32 nations’ combined drug spending was $133 billion less than what the US—a single country—spent on drugs in one year.

Additionally, US drug sales represented less than a quarter of drug sales across all of the OECD countries. That means that the US spends more on prescription drugs, but receives fewer prescription drugs.

“Without addressing issues around the mix of drugs, this is an initial sign that U.S. prices are much higher than those in other countries,” explained the RAND report from which the Commonwealth Fund drew its data.

The US spent 30 percent more on prescription drugs than other countries with high incomes.

The researchers drilled down on prescription drug costs for certain conditions to compare drug spending in the US to drug spending in other high-income nations. These more specific evaluations told a similar story: the US spends much more on prescription drugs than its peers around the world.

Studies showed that outpatient drug spending among seniors with hip fractures reached $3,127 per person. The country with the next highest level of outpatient drug spending was Canada, where outpatient drugs for hip fractures cost $1,738 per person or nearly half the cost in the US. England had the lowest cost: $484 per person for outpatient drugs.

The researchers also studied drug utilization and spending among patients with diabetes who are hospitalized for heart failure. 

In the US, patients received on average 16 prescriptions for this condition. Compared to ten other countries, the US was behind five other nations in the number of drugs that patients were prescribed but surpassed all of them in cost. 

While France prescribed the most drugs for this condition on average—22 prescriptions—drug spending was approximately $2,200 per patient. In the US, patients were prescribed on average 16 drugs but the price tag was more than $6,100.

The solution to high prescription drug spending in the US may not depend upon a greater reliance on generics because the US already uses more generics than any of the other OECD countries (84 percent compared to 35 percent) and its generics are cheaper than generics in OECD countries.

Researchers revealed the primary reason why the US spends more on prescription drugs: drug pricing. In 2018, brand-name prescription drugs in the US were three times the cost in other well-resourced countries like Germany, Japan, and the United Kingdom, leading to lower rates of medication adherence in the US than in other nations.

The researchers listed four reasons why US drug prices were higher than other nations’ prices.

First, the researchers found that other nations often negotiate prices with drug manufacturers. Often the central government is responsible for this task, they noted. 

This is an option that is on the table in the US through the Build Back Better Act. The Biden administration has recommended allowing Medicare to negotiate drug prices for drugs that do not have a corresponding covered generic or biosimilar.

Second, other countries assign drug prices based on clinical value. Similarly, some states in the US have implemented value-based contracts with drug manufacturers to achieve lower prices using a subscription-based payment model. However, the latest analyses of these models revealed mixed results and the contracts for these models tend to be very complex.

Third, other nations have leveraged both international and domestic reference pricing to set drug prices. In 2019 when policymakers were considering many proposals related to drug spending, the Trump administration recommended implementing an international price index model. However, the model did not move forward.

Finally, other nations do not give drug manufacturers a prolonged exclusivity period, but rather limit that timeframe. AHIP has acknowledged this strategy alongside other measures to control drug spending by giving patients greater access to lower-cost biosimilars.

Although the payer industry is well-aware that high drug spending is driving higher healthcare spending overall, placing the cost in the context of global prescription drug spending trends offers a more holistic perspective on the extent of this problem.