The US Has Low Prices for Most Prescription Drugs

By Alex Tabarrok.

"The US has high prices for branded drugs but it has some of the lowest prices for generic drugs in the world and generic drugs are 90% of prescriptions. I’ve been saying this for years but here is the latest study:

U.S. prices for brand-name originator drugs were 422 percent of prices in comparison countries, while U.S. unbranded generics, which we found account for 90 percent of U.S. prescription volume, were on average cheaper at 67 percent of prices in comparison countries, where on average only 41 percent of prescription volume is for unbranded generics. U.S. prices for brand-name drugs remained 308 percent of prices in other countries even after adjustments to account for rebates paid by drug companies to U.S. payers and their pharmacy benefit managers.

Branded drugs are expensive but that is why we have insurance which works reasonably well, albeit far from perfectly. For example, insurance and the low price of generics is one reason that out-of-pocket costs for medical are low in the United States.

If you don’t want to pay high prices for branded drugs just use generics! As I wrote 20 years ago, in what was called a heartless and cruel post:

People talk about the high price of pharmaceuticals as if high prices lasted forever. In fact, within a year of the expiration of a pharmaceutical’s patents, prices will typically fall by more than 50 percent as generic producers enter the market. Patents nominally last for 20 years but the effective patent life is much lower because patents are typically granted years before a product has cleared FDA review. The effective patent life of the average new pharmaceutical in the 1990s averaged just 12 years [new reference for today, 13.5 years, AT]. Competition from competing but non-infringing pharmaceuticals makes the de facto patent life even shorter.

Thus, my response to the seniors and others clamoring for lower pharmaceutical prices is to be more patient. Does this sound harsh? Consider this, the people who are demanding price controls are not simply asking for lower drug prices they are asking for lower prices on the newest drugs. Lower prices for drugs introduced 15 years ago are already here. Remember, those drugs were recently considered the very best modern medicine has to offer, so it’s not like I am expecting those who can’t afford the newer medicines to go back to using leeches.

Price controls or other such plans such as reimportation may bring cheaper pharmaceuticals for a short period but we will then have a much smaller supply of new drugs forever. Only the shortsighted would buy that prescription.

Don’t fail the marshmallow test people!

People get upset when I say just generics–shouldn’t everyone have access to the very best pharmaceuticals! Yes! But that illustrates another point–these drugs are worth the price!"