Why the cost of prescription drugs is high in the US?

The United States spends more on prescription drugs compared to other developed nations. On average, the United States spends as much as 2X times on prescription drugs compared to the Western world. The main reason is the lack of price negotiations at the central level. 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 entirely different. There are several payers, including Medicare and Medicaid, and there are no price controls.

Also read: Top 10 pharmaceutical companies by revenues in 2021


Out of pocket payments is one of the major cause for non-compliance to the treatment in the United States.

In the United States, the Veteran Administration spends only one-third of the price compared to the national average and the prices comparable to New Zealand. The reason has a central body that does the price negotiation and avoids inclusion in the formulary if the product doesn’t show enough added benefit.





Fragmentation of the payers is the primary reason for high prices

In countries like Australia, a single-payer negotiates drug prices. However, in the United States, several insurance systems provide healthcare expenses, making the system fragmented. This provides an advantage for the pharmaceutical companies in raising the prices.


High prices will encourage innovation.

High prices in the United States drive innovation. Price regulation and reduction in pharmaceutical costs can significantly impact the research in the pharmaceutical industry. The United States leads the drug innovation, making patients worldwide able to access the new drugs.

Also read: Top 10 pharmaceutical companies by revenues in 2021

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