Chart: 2 sides of our prescription drug costs

By Taxpayers Association of Oregon Foundation,

This chart helps explain the two-sided nature of American prescription drug costs.   This chart shows how the United States fares to comparable nations on costs.

One one hand, the chart shows that the United States overpays for brand name drugs (422% margin).    Most brand name drugs are invented and created in the United States.  These brand names  represent the best, most-effective and ground breaking medicine one can get anywhere in the world.   This is why they cost so much.   Other nations, like Canada and Europe, require these brand name drugs to be sold at a steep discount or they will not be accepted into their nation.   Pharma-companies accept the big cutbacks in order to access these markets.   This means the United States is subsidizing the most important brand name medicine for the rest of the world.    This is a perfect example of the trade imbalance that the President is trying to correct where other nations set restrictions on our products.

In a different tactic, Trump proposed an Executive Order this week demanding that pharmaceutical companies lower their prescription drug costs.   This is a very forced opportunity for companies to draw attention to the trade imbalances, Medicaid abuses and lawsuit abuse that lead to lopsided pricing.   The temptation is to enact price-controls which Biden tinkered with on a small scale during his term.  Drug price controls already failed in the 1970’s.  In fact, price controls have failed everywhere.  ALEC notes, “price controls are not a novel concept, but a practice with roots extending back to the Roman Empire and even nearly 2000 years earlier, to the Babylonians.  Each attempt throughout history has ended in failure, including in the United States, when President Richard Nixon had his ill-fated attempt to freeze prices and wages in the early 1970s which led, of course, to shortages, empty supermarket shelves, and gas lines. Admirably, President Nixon, later in life, acknowledged that these controls were a major policy error.”

Interestingly, the United States is the place where these leading drugs are made for the entire world simply because we do not over-tax, over-regulate or price-control our medicine like other nations.   If the United States aims to enact our own price controls — we will end up with sky high prices.

The United States has been dominating the world on research into new drugs.

The other side of the coin is the fact that Americans utilize a lot of generic brand use (roughly 91% of all drug purchases). American generic drug costs are very low.   When you factor in the generic costs for Americans it results in Americans paying less for prescription drugs than the average comparable nation.

In conclusion, Americans are paying slightly less than other countries for prescription drugs while having the best access to the latest leading medicinal inventions.  Yet, our brand name costs are clearly over-priced due to the fact that drug companies must pay other nations which require steep cuts to access their markets.   This means there is room to reduce drug costs in America by focusing on the relationship with other nations rather than to over-tax or over-regulate our domestic market.