The United States spends more on prescription drugs compared to other developed nations. On average the United States as much as double the prices for prescription compared to the Western world. The main reason is the lack of price negotiations and control over the drug prices. In the other industrial countries, there is a single payer system with proper health technology assessment and price negotiations, however, the system in the United States is completely different. There are several payers including Medicare and Medicaid and there are no price controls.
Out of pocket payments is one of the major cause for the non-compliance to the treatment in the United States.
In the United States, the Veteran Administration spends only one-third price compared to the national average and the prices comparable to prices in New Zealand. The reason is having a central body which does the price negotiation and avoids inclusion in the formulary if the product doesn’t show enough added benefit.
Fragmentation of the payers is one the major reason for high prices
Countries like in Australia has a single payer system who can negotiate the drug prices. However, in the United States, there are several insurance systems that provide healthcare expenses, making the system fragmented. This provides an advantage for the pharmaceutical companies in raising the prices.
High prices will encourage the innovation
High prices in the United States drives innovation. Price regulation and reduction in pharmaceutical prices can significantly impact the research in the pharmaceutical industry. The United States leads the drug innovation making the patients across the world able to access the new drugs. Most of the drug innovation is done by small companies which are highly promoted because of the high drug prices.
There are both advantages and disadvantages of high drug prices in the United States.