Posted by Bill Sandweg on 04 February 2019.
I have often written about the fact that drug prices in the United States are a disgrace. See here and here. We pay more for the same drugs than anyone else in the world. A recent article in the New York Times traces the trajectory of drug prices from the early 1980’s until the present. The authors conclude that something happened in the 1990’s that caused prices here to skyrocket compared to the rest of the world.
In 1980, the cost of prescription drugs in the United States was not that much different than in the rest of the developed world. Residents of each country spent about the same for drugs. Then things began to change. The yearly cost of prescription drugs in the United States tripled in the ten years between 1997 and 2007. What happened?
Americans don’t take more drugs than people in other developed countries. They don’t avoid generic drugs in favor of high-priced alternatives any more than residents of other countries do. Even our generic drugs cost way more than the exact same generic drug in most countries in Europe, for example. The same drug in Canada costs about half of what it costs in the United States.
The authors of the Times article point to the obvious answer: other countries don’t let drug companies charge an arm and a leg for medications but we sure do. In my blog post last month on drug prices, I pointed out that the pharmaceutical industry has spent billions lobbying Congress to keep its hands off drug prices. The money has been well-spent. Congress, for instance, has forbidden Medicare, the entity that pays for a large percentage of all prescription drugs taken in the United States, from negotiating price with the drug companies.
In the 1990’s, the failure of the government to do anything to control prices, coupled with an explosion of new, blockbuster drugs, led to a rapid increase in the per year cost of drugs here as compared to the rest of the developed world. Medicare and Medicaid also expanded their coverage so people who in the past might not have been able to afford the higher prices could now pay them.
Also, as has often been pointed out, most Americans do not pay directly for their health care. They have either private insurance or some form of government coverage. For that reason, most of us are insensitive to price. We pay a co-pay when we go to the drugstore. Very few of us, if asked, could tell you the actual list price of the medicine we just picked up at CVS. All we know is the co-pay. When consumers are insulated from price like this, price no longer plays a role in choices they make. The free market for drugs is broken and does not act as it should. The entities that do pay the rest of the price are either forbidden from acting to reduce prices or don’t care that much because they are getting their piece of the action. According to Michelle Mello, a health law scholar at Stanford quoted in the Times article, “Though we pay high prices for some drugs of high value, we also pay high prices for drugs of little value. The U.S. stands virtually alone in this.”
President Trump has been making noises about bringing down high drug prices by freeing up the government to negotiate with the drug companies. It would be a wonderful thing for everyone but the drug companies if he actually followed through on this.