Why Are Pharmaceuticals Cheaper Abroad?

Citizens of the United States often bemoan the costs of healthcare, pointing to the ever-increasing prices of prescription drugs as a prime example of what is wrong with the current system. The truth of the matter is that Americans are not wrong about the seemingly exorbitant expenses associated with prescription drugs; in fact, American consumers regularly pay two to six times more for the same drugs as people abroad.

Why are pharmaceuticals so much cheaper overseas? There are a few reasons that American prescription drug users cannot seem to come out ahead:

1. Pharmaceuticals claim high development costs. – Describing the prescription drug development process of more than 10 years and a couple billion dollars to get one drug from inception to market, pharmaceuticals claim to offset the costs of failed drug development with high prescription costs. However, most experts agree that pharmaceuticals charge high prices simply because they can with little recourse.

2. The American healthcare system works against price negotiation. – Many nations worldwide operate with a single, national healthcare system. When only one service finances and controls the prescription drug market, that service has the power to negotiate the price for everyone under its care. If the pharmaceuticals do not settle a reasonable price with the service, their drugs are not available to the people. In the United States, there are thousands of individual insurance groups and policies that represent individual consumers. When each of these insurance groups negotiates simply for its constituents, there is no common, regulated price established for each drug. This process leads to situations where neighbors may pay vastly different prices for the same prescription drugs.

3. By law, Medicare cannot engage in pharmaceutical negotiations. – Medicare is the largest provider of prescription drugs in the nation, but by law, it cannot negotiate prices with any pharmaceuticals directly. If Medicare were to be allowed to deal with the pharmaceuticals, it could leverage its massive client base to drastically reduce the price of many prescription drugs.

4. The U.S. Food and Drug Administration has no regulatory authority over pharmaceuticals. – Unlike many other nations, the United States does not have a governmental or non-governmental agency with the authority to research prescription drug efficacies. With this kind of information, pharmaceuticals can be leveraged to set reasonable prices based on effectiveness and other comparable drugs on the market. Creating this type of competition would help keep prescription drug prices in check.

Until the United States makes some policy changes in the ways that prescription drugs are managed, pharmaceuticals will continue to be cheaper abroad.

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