Why Are Prescription Drugs in the US So Expensive?

But what would happen if we didn’t allow pharmaceutical companies to determine their own market prices? The problem is that because this would reduce the company’s profits, it might make the pharma industry less appealing for investors. This could impact the amount of venture capital that pours into research into new cures and treatments, as venture capitalists make their investment decisions based on whether they can make a substantial profit.

Today, the high drug prices in the United States have made investing in pharmaceuticals quite a profitable undertaking. However, it also impacts whether Americans can comfortably afford the medications they need.

Why Do Other Countries Regulate Drug Prices?

The reasoning behind drug price regulation in other countries, such as Australia and the United Kingdom, is that in these countries, drugs are conceptualized as a public utility. It’s considered important to make sure that citizens can actually afford these drugs, and that medical treatment remains affordable for people across a wide range of income levels.

This brings some trade-offs in policy. In countries like Australia, the government often declines to cover certain drugs if, after close examination and research, they’re not determined to be worth their price. Being able to say “no” is what gives these countries’ governments leverage in price negotiations. Because of this, some of the drugs available in the United States are not available in other countries. In some cases, there is public resistance when a country’s government declines to approve a certain drug.

However, this isn’t to say that patients in the US automatically have access to a wider variety of drugs. Many medications are expensive enough that it’s difficult for the average person to afford them, making them essentially unattainable.

Health Insurance & Price Fragmentation

Another effect of the fact that the US doesn’t have a government panel for drug price negotiation, is that all of the various insurance plans across the country must negotiate drug prices individually with pharmaceutical companies. These health insurance companies have far less bargaining power than the government panels found in other countries.

Ultimately, The Issue Is Quite Complex

Unfortunately, there aren’t really any easy answers for resolving this issue. While introducing government regulation of drug prices would lower prices for consumers, it could also have the unintended side effect of decreasing the amount of innovation in drug development. It becomes a matter of trading off some degree of innovation for better access, an exchange that has both benefits and drawbacks. It’s not merely a matter of predatory pharmaceutical companies bleeding sick people dry and driving them into debt in the name of profit, it’s a complex side effect of free market capitalism and of the key role that venture capital plays in funding pharmaceutical research.