Prescription drug spending in U.S. among highest worldwide

Prescription drug spending in the United States exceeds spending in nine other high income countries, with generic drugs comprising 84 percent of the total pharmaceutical market. Besides the U.S., a Commonwealth Fund issue brief looked at prescription drug spending in Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom.

Prescription drug spending in U.S. increases in 1990s

According to the Commonwealth Fund review, spending on prescriptions drugs increased substantially in the mid-1990s due largely to the growth of the pharmaceutical industry. For instance, FDA approved drugs were at an all-time high and sales of cancer drugs increased. Additionally, drug spending increased due to the expansion of federal programs such as the Children’s Health Insurance Program, Medicaid, and Medicare.

Prescription drug spending increased by 20 percent over a period of two years during the mid-2000s. The growth was primarily due to introducing many expensive specialty drugs to treat hepatitis C, cystic fibrosis and other conditions. Passage of the Affordable Care Act likely led to such increases as well. U.S. spending on pharmaceuticals surpassed $1,000 per person in 2015 and was 30 percent to 190 percent higher than in the nine other countries. The next countries, behind the U.S., in spending in 2015 were Switzerland with $783, Germany with $686, and Canada with $669.

Reasons U.S. spending on prescription drugs is so high

The Commonwealth Fund offered possible reasons to explain why the U.S. spends so much on prescription drugs, including country population and volume of drugs consumed, drug utilization per person, type and mix of drugs consumed (e.g., generics versus brand-name drugs), and prices at which drugs are sold.

Although the U.S. population is ranked among the largest and has the highest prescription drug spending as a country, spending per capita remains much higher in the U.S. than that of other countries. Higher per person spending is not due to the large population of the U.S., however.

The impact of generic prescription drugs

Generic drugs make up 84 percent of the total U.S. pharmaceutical market, which is a larger share than in all other countries, excluding the U.K., which is tied with the U.S. with 84 percent. Followed by the U.S. are Germany with 81 percent, Netherlands with 71 percent and Canada with 70 percent of the share of generic prescription drugs. Lower prescription drug prices in the other countries reflect more centralized processes for obtaining pharmaceuticals and setting coverage.

Conclusion. Price continues to play a primary factor in the high prices associated with prescription drugs in the U.S. The reasons can be attributed to the fragmented nature of health care delivery and payment, as well as separate negotiation arrangements between drug manufacturers and payers and complicated arrangements for federal and state health programs. Also, the U.S., unlike other countries, allows for greater latitude for monopoly pricing of brand name drugs.