The Real Relationship Between American Drug Prices and Research

It is no secret that prescription drug prices in the U.S. are among the highest of any developed Western nation. On average, it has been calculated that prescription drugs cost American consumers around 2.5 times more than the standard for other nations with advanced healthcare systems such as Australia, Canada, and the United Kingdom. Put into slightly more dramatic terms, this is a 250% mark-up over what is standard for those living in the Western world today.

Why So Expensive?

The reason for this, as is by now well known, is that the U.S. government does not play a role in the introduction of these drugs to the American market. This allows pharmaceutical companies (domestic and international alike) to set the pricing standard, which is something they do in close collaboration with each other. This is a system that stands in stark contrast to the different systems found elsewhere in the developed world. In Canada, for example, the government steps and imposes caps on the prices of drugs sold to the Canadian market, essentially threatening Big Pharma with the loss of that entire market. In Germany, statutory health insurance requires citizens pay only 10% of the cost of the drugs on the market (which is also capped a la Canada). In the United Kingdom, the government pays the whole amount and citizens receive the drugs free (or they pay for it with their taxes, to be more accurate).

Set out in these stark terms, the American system seems horribly unfair. And indeed, the online purchase of Canadian drugs from online pharmacies such as Canada Pharmacy (a safe and secure means of acquiring the self-same drugs for a fraction of the price) is a phenomenon that has only grown in intensity and seems to stem from a widespread feeling that the American system really is unfair.

However, it should be remembered that such a system would not exist for so long if it did not have its defenders, and perhaps we should keep in mind that those defenders have their arguments for maintaining the current “hands off” approach the U.S. government takes towards pharmaceutical companies selling their wares in the U.S. Chief among these arguments is that high American prices fund the innovative research that brings new life-saving drugs into existence. But this is an argument that deserves some scrutiny.

Does Research Cost that Much?

It should of course be remembered that America is a very large and very rich country, with the largest domestic pharmaceutical industry in the world. Indeed, it is nearly four times as large as the second placed country, Japan. This means that America is where many of the world’s life-saving drugs are manufactured – and the high prices paid by Americans is said to be necessary to make sure that keeps happening.

Admittedly, the American market is always going to provide pharmaceutical companies with more research funds than a country like Canada, but is it really necessary for their drugs to cost so much?

As it turns out, there is now research to suggest “no.” Peter Bach, a researcher at the firm Memorial Sloan Kettering compared prices of the 20 best-selling drugs in the United States to those in Europe and Canada. They discovered that the revenue generated from the price difference on these twenty drugs alone, more than covers the research and development being done by the fifteen companies that make those drugs.

The question then arises, what are these companies doing with all this extra money? They claim it is for research – research that isn’t being done.

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