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Experts say brand-name drugs are the primary reason for higher prescription prices. Tom Werner / Getty Images
  • A new survey indicates that prescription drug prices in the United States are more than twice as high as in other countries.
  • Experts say brand-name drugs are the main driver of higher prices.
  • They note that the actual out-of-pocket cost to consumers for a prescription is difficult to gauge due to consumer rebates and price adjustments to insurers.

Most people in the United States know that prescription drugs can be expensive.

How expensive?

Prescription drugs in the United States on average cost around 2.5 times more than those same drugs do in other Western countries, according to a new report from the nonprofit, nonpartisan research organization, RAND Corporation.

Those prices, in fact, have been steadily increasing for a while.

The RAND study found that spending on prescription drugs in the United States rose 76 percent between 2000 and 2017.

According to the RAND report, brand-name drugs appear to be the primary driver of price disparities in the United States compared to the 32 other nations analyzed in the study.

For example, brand-name depression drug Abilify costs $34 per pill in the United States compared to less than $5 per pill in Canada, according to a PharmacyChecker analysis.

Likewise, asthma drug Flovent costs $781 in the United States compared to $152 in the United Kingdom, Australia, and New Zealand.

All told, countries in the study spend nearly $800 billion on prescription drugs per year, with the United States accounting for 58 percent of the total but only 24 percent of the consumption.

Generic drugs, which account for 84 percent of all drugs sold in the United States, are actually slightly cheaper here than in other countries, on average. But the RAND study shows that they make up only 12 percent of total pharmaceutical drug spending,

“For the generic drugs that make up a large majority of the prescriptions written in the United States, our costs are lower,” Andrew Mulcahy, PhD, lead author of the study and a senior health policy researcher at RAND, said in a press statement. “It’s just for the brand name drugs that we pay through the nose.”

The true cost of prescription drugs in the United States is difficult to determine.

That’s because they’re enmeshed in a web of pricing adjustments and middle managers from the manufacturer’s list price (the gross price) to the actual price a person pays.

“Since gross prices have been growing much faster than net prices — in fact, over the past 3 years, net prices have been declining — there has been an inequitable cost shifting that has been occurring,” said Wayne Winegarden, PhD, an economist with the Pacific Research Institute (PRI) and the director of PRI’s Center for Medical Economics and Innovation.

“Patients out-of-pocket costs have been growing while net costs to insurers have been going down. This means that insured patients are now bearing a disproportionate share of the costs relative to the terms of their insurance agreements (spirit of the agreements, not the letter).”

“The health insurance system in the U.S. is so entirely different than in any other developed nation,” Thomas Miller, senior counsel and FDA and Life Science Lead, at Nixon Gwilt Law in Washington, D.C., told Healthline.

“There are three reasons that prescription drug costs are higher in the U.S. than in other countries. One, we have a multi-payer insurance system with several intervening entities each taking a margin; two, the government does not set ceiling prices in the U.S. like they do in other countries; and three, marketing exclusivity periods for patented innovator drugs.”

The other party unique to the United States’ healthcare system are a group of middlemen known as pharmacy benefit managers (PBMs), who negotiate prices with pharmaceutical companies for inclusion in health insurance coverage lists, also known as formularies.

“PBMs and insurance companies usually demand sweet deals from pharma manufacturers in exchange for inclusion on their coverage lists. These come in two forms: direct discounts or rebates,” Timothy Faust, a health care reform advocate, public speaker, and author of Health Justice Now: Single Payer and What Comes Next, told Healthline.

“Direct discounts are what they sound like — lowered list prices — and rebates are more nefarious. The PBM, upon purchase of the drug, receives a rebate from the manufacturer. This rebate is usually split between the insurer and the PBM but rarely passed on to the patient, whose copay is based on the drug’s list price regardless.”

But some rebates go directly to the consumer as well, another factor that makes it difficult to assess the actual costs of prescriptions.

“To counteract this tendency and encourage insurers to reconsider, manufacturers will sometimes offer direct-to-patient rebates, the likes of which are collected by products like GoodRX,” Faust said.

The end result is a war of internal pricing, where manufacturers are incentivized to increase list prices while simultaneously increasing discounts to keep PBMs happy.

“So what’s the ‘true’ cost of a drug?” Faust asked. “It depends on who’s paying, and everyone involved is pushing costs up, up, up.”

Challenging this trend would require a large push against a powerful alliance of financial interests.

“As one of the largest industries in the U.S., drug manufacturing is using its vast resources to protect the industry from regulatory changes that might negatively decrease the market size, which in turn keeps pressure on the cost of the prescription to remain higher than other countries,” said Brandon Newman, CEO and co-founder of Xevant, a drug analytics company.

“The conclusion from this reality should encourage fundamental rebate reforms to both fix the cost-shifting problems in the U.S. and to develop a more open and reliable net price,” Winegarden added.

There are other levers as well.

For instance, Medicare, which currently accounts for nearly a third of all retail pharmaceutical spending, is currently prevented from negotiating drug prices. Some experts say that giving Medicare the ability to negotiate pricing would help drive costs down.

Another possibility includes making sure everyone has health coverage, since uninsured people don’t benefit from negotiated pricing (though they can use direct-to-consumer rebates).

“An insurer typically structures its formulary such that drugs that are cheaper for the insurer are cheaper for the consumer, to encourage patients to request cheaper drugs like generics,” Faust said. “Uninsured people exist at the whim of the market.”