First, the good news. Generic drug prices are lower in the U.S. on average than in more than two dozen comparable countries.
Now, the bad. Brand-name drugs cost 344% more.
"It's a shockingly large number," said Andrew Mulcahy, senior health policy researcher with the RAND Corp..
A new RAND study spotlights just how much more the U.S. pays for brand-name drugs compared with its international peers. Across all drug types, U.S. prices were 256% of those in the 32 comparison countries in 2018.
Brand-name drugs, while a small share of total drugs dispensed in the U.S., are responsible for the country's higher prices. In the U.S, brand-name originator drugs, those manufactured by the companies that won their approval, accounted for just 11% of sale volume and 82% of spending. Mulcahy, one of the study's authors, said that includes some types of insulin, hepatitis C drugs and certain cancer drugs.
A bright spot in RAND's study was the finding that U.S. generic drug prices average 84% of those in the comparison countries. Generics represent more than 80% of drugs dispensed in the U.S., compared with 35% across the other countries.
Mulcahy attributes the low generic prices to "a success story of U.S. policy," a 1984 law that spurred robust competition in the generic market. The Hatch-Waxman Amendments established the pathway for generic drugs. Mulcahy said other countries have tried to emulate the policy with varying degrees of success.
"In generics, this is an area where the stars have aligned with the right policy setup, the right regulatory framework and the right financial incentives," he said. "It's just worked out really well in the U.S."
The 32 countries included in the study were members of the Organisation for Economic Co-operation and Development, an international coalition that works on economic, education and other issues.
Together, those countries spent almost $800 billion on drugs in 2018. The U.S. accounted for more than 58% of that spending but just 24% of the volume of drugs sold.
Many other countries' share of the volume exceeded their spending. Japan, for example, accounted for about 9% of the spending and 21% of the volume. Turkey had 0.8% of spending and 6.3% of volume. The United Kingdom had 3% of spending and almost 6% of volume.
The governments of countries like Japan, Germany, France, Italy and the U.K. perform specific assessments of drugs to determine fair prices and then set upper limits on what companies can charge for new drugs, Mulcahy said.
Other countries use reference pricing, where they try to set their prices below those of other countries. The Trump administration tried to implement such a policy in late 2020 with its so-called most-favored nation rule. That policy, which hasn't been implemented because of a lawsuit from the drugmaker lobby, would tie the Medicare prices of certain outpatient drugs to those in other countries. It's not clear how the Biden administration will approach that policy.
This week, hospitals argued the Trump-era drug pricing policy is illegal and wouldn't lower prices or patients' out-of-pocket costs. The American Hospital Association asked CMS to "withdraw it immediately and replace it with a serious effort at drug pricing reform."
The RAND study created a drug price index rather than studying specific prices, which is a common approach in drug price studies because it holds mix and volume constant. It relied on IQVIA's MIDAS data, which contains estimates of prescription drug sales and volume based on transaction audits in each country.
Despite lots of debate over drug pricing reforms, Mulcahy said this is the first comprehensive study comparing U.S. drug prices to other countries in the past decade.
"Our hope is that this will be a good foundation for some of those policy discussions," he said.