Prescription Drug Prices in The United States

Prescription drug prices in the United States are the highest in the world. "The prices Americans pay for prescription drugs, which are far higher than those paid by citizens of any other developed country, help explain why the pharmaceutical industry is — and has been for years — the most profitable of all businesses in the U.S. In the annual Fortune 500 survey, the pharmaceutical industry topped the list of the most profitable industries, with a return of 17% on revenue." National expenditures on pharmaceuticals accounted for 12.9% of total health care costs, compared to an OECD average of 17.7% (2003 figures). The high price of prescription drugs is one of the major areas of discussion in the U.S. health care reform debate.

Although the cost of manufacturing a drug is relatively low, the cost of inventing a drug is relatively high, and the United States' high drug prices allow the U.S. pharmaceutical industry to invent a highly disproportionate share of all drugs. Although the United States is only 5% of the world's population, it accounts for 36% of worldwide research and development of pharmaceutical drugs. A study by Battelle Memorial Institute estimated that drug research will save more than $750 billion in treatment costs for just five illnesses (AIDS, heart disease, cancer, Alzheimer's, and arthritis) over the next 25 years. Schizophrenia drugs which cost $4,500 per patient per year save more than $70,000 per patient per year by rendering hospitalization unnecessary.

Prices of brand name drugs in the United States are significantly higher than in Canada, India, the UK and other countries, nearly all of which have price controls. Prices for generic drugs tend to be higher in Canada. The price differential for brand-name drugs between the U.S. and Canada has led Americans to purchase more than US$1 billion in drugs per year from Canadian pharmacies.

To save money, "U.S. Customs estimates 10 million U.S. citizens bring in medications at land borders each year. An additional 2 million packages of pharmaceuticals arrive annually by international mail from Thailand, India, South Africa and other points," reports the Washington Post. A few years ago, uninsured Americans would often purchase their cheaper medications from Canadian pharmacies. However, today, consumers shop at lower-cost online pharmacies in India, the UK, and other countries where they can save even more money—up to 60 to 80 percent or more savings off US prices.

Providers and policy makers may attempt to reduce these costs by substituting 3-month for 1-month supplies of medicines. A paper published in 2009 measured the differences in out-of-pocket and total costs among patients receiving the same prescription drug to treat a chronic condition and examined the patient and health system characteristics associated with the use of a 3 month supply. After adjustment for potential confounders, this represented a 29% decrease in out-of-pocket costs and an 18% decrease in total prescription costs through the use of a 3-month rather than a 1-month supply.

Pharmaceutical companies argue that the prices they set are necessary in order to continue to fund research. 11% of drug candidates that enter clinical trials are successful and receive approval for sale. Critics of pharmaceutical companies point out that only a small portion of the drug companies' expenditures are used for research and development, with the majority of their money being spent in the areas of marketing and administration.

The AARP has published a series of studies suggesting that prescription drug prices are rising significantly faster than general inflation. The American Enterprise Institute, a conservative think tank, has criticized the methodology used as overstating drug price inflation.

Prescription drug prices, in particular as part of Medicare, have become a political issue in the United States.

The pharmaceutical industry has thousands of lobbyists in Washington, DC, that lobby Congress and protect their interests. The pharmaceutical industry spent $855 million, more than any other industry, on lobbying activities from 1998 to 2006, according to the non-partisan Center for Public Integrity.