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Why are drug prices so high in the US?

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With millions of Americans taking to the internet to buy medication from abroad, it’s obvious that America faces a huge dilemma when it comes to supplying prescription medications to its citizens. Americans pay far more for their drugs than many other 1st world countries but have you ever stopped to wonder why drug prices are so high? What makes America different from the rest of the world?

drug pricesAs a recent article in the Huffington Post Healthy Living rightly pointed out, consumption makes up 70% of the US economy. Generally, consumables in the US are quite cheap. Everything from children’s toys and electrical goods to food and gas can be bought at decent prices. If they are not cheap then at least the price correlates to other countries or you know there will be a mid-season sale where you can snap up what you want for less money. So the question is why are medications so different? They are consumables, albeit with a doctor’s approval. Why are drug prices in America an average of 50% more than countries like Canada and the UK? is based in Israel and sells the same branded medication for 50-70% less as well. That’s even cheaper than the average price you would pay in Canada or the UK.

The main reason seems to be down to the power of negotiation. Many countries have a socialized healthcare system that can bulk buy from drug companies. Negotiating drug prices and saving money is a huge benefit when buying large quantities. In the US though, Medicare is prohibited by the government from negotiating prices, so they have to pay the standard manufacturer prices. Like any business, drug companies add on a small profit margin to make sure costs are covered and the business can run successfully. Institutions and hospitals then do the same and before you know it the prices are that much higher. Not great news if you want to buy prescription medication in the US now but there are apparently some benefits to the high prices.

Americans paying full price for drugs help drug companies to stay in business and fund the research and production of new drugs. If everyone gets a discount price then there is no full price anymore and company profit margin goes down. It’s like having an all year long sale. Ultimately, this leads to less money to invest in research. Another benefit is that America seems to get faster access to newer drugs which in turn help to save more American lives and leaves America at the forefront of development.

At the end of the day, the prescription drug business is just any other business. People have to get paid, shareholders need to benefit and profits need to bankroll the next round of growth. It’s a bit of a catch 22 situation for the average American not involved in the pharmaceutical business and not prepared to buy online for personal importation. They don’t get a choice about choosing cheaper drugs now or better drugs for the future. It’s simply higher drug prices now.

Considering most Americans will not benefit from the drugs being developed it doesn’t really seem fair. Someone who is sick now and is forced to pay $1000’s on medications doesn’t have time to wait for new research on irrelevant medications that will not help them personally get better.

What’s your opinion on negotiating drug prices? Should Americans be given the choice?


For more information on how drug costs affect US healthcare you can visit our previous blog post on “Why do Americans pay the highest healthcare costs?”. The article explains a bit about the recent McKinsey report on healthcare spending.



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