International Differences

in Prescription Drug Prices

Roxana Tipurita
Question
To what extent do prescription drugs vary in
price across countries and what factors
stimulate these changes?
Trend

§ People from different countries are paying different prices for identical
prescription drugs. Pharmaceutical companies fail to acknowledge significant
factors that affect individuals such as their medical vulnerability,
income/class, etc. To increase their “potential for future revenues” in order
to induce “investment in new medicines,” drug companies raise their prices,
solely focusing on the business aspect of pharmaceuticals rather than the
well being of their customers.

(Wagner & McCarthy, 2004)

Per Capita Pharmaceutical Spending
(2015)

United States $1,011.4

Switzerland $783.3

Germany $685.8

Canada $669.3

France $552.7

United Kingdom $497.4

(Sarnak et al., 2017)


Per Capita Pharmaceutical Spending
(2015)
Prescription drug spending per
capita is significantly higher in
the United States than in most
high-income countries.

United States $1,011.4

Switzerland $783.3

Germany $685.8

Canada $669.3

France $552.7

United Kingdom $497.4

(Sarnak et al., 2017)

Factors That Stimulate International Price Differences

Insurance
Willingness to Pay
Price Discrimination
1 Insurance
 Out-of-Pocket Costs

§ Out-of-pocket costs — expenses for health care that are not compensated by insurance. This includes the
deductible, copayments, and coinsurance.

§ Insurance works to reduce these out-of-pocket costs for prescription drugs in order to make the drugs more
attainable for those that need them. Insurance companies that provide greater coverage allow consumers to
pay less money for medical care, making prescription drugs easier to obtain (which in turn increases demand
for the drugs).

§ However, not every individual in need of medicine has insurance, making it extremely difficult for them to buy
the drugs they need. Similarly, even if one has insurance, his/her insurance coverage may not be as widespread
as others, making out-of-pocket costs often unbearable. Therefore, as manufacturers set high prices with the
idea that insurance will cover most of the costs, these companies fail to recognize the significant toll that
increasing prices has on many individuals.
(NORD, n.d.)
Insurance and Demand

Increased
Lower out-
Greater insurance demand for
of-pocket
coverage drugs at any
costs
price

(Wagner & McCarthy, 2004)

2 Willingness to Pay
 Setting the Price

When pricing their drugs, pharmaceutical companies closely consider

the reimbursements and aid that patients receive in order to identify
their true out-of-pocket costs. They acknowledge the existence of
loans, insurance, and Medicare, and increase their prices accordingly.
However, these benefits are not available to everyone, making the
high prices affect some more than others.

(Wagner & McCarthy, 2004)

 In the United States, advocates of the
companies’ decisions argue for the high
costs by stating that the prices reflect
Americans’ access to the latest medical
advances.

They believe that high prices are valid, given the extent

Willingness
of innovation and funding required to develop these life
saving drugs. As people are given this information, they
become more willing to pay higher prices, therefore
validating the companies’ decisions.

or Ability Those living in low-income households are

often forced to choose between

to Pay?
drugs/medicine and life necessities such as
food, shelter, etc. (given their inability to
afford both simultaneously).

Therefore, individuals that face

a financial disadvantage
compared to high-income
residents are not able, or
willing, to pay high prescription
drug prices. (Wagner & McCarthy, 2004)
3 Price
Discrimination
 Imagine that there are only two countries
Example involved, the United States and Uganda, and
we are focusing on PLC– the drug for AIDS.

United States Uganda

§ PLC sells for $18 § PLC sells for $9

If the drug company had to charge the same

price in each country, what would it be?
(The New York Times Company, 2000)
 Imagine that there are only two countries
Example involved, the United States and Uganda, and
we are focusing on PLC– the drug for AIDS.

United States Uganda

§ PLC sells for $18 § PLC sells for $9

The price will most likely rise closer to $18. While sales will
certainly decrease in Uganda since the drug becomes more
difficult to afford, since the market in Uganda is smaller
than that of the United States, revenue lost from a price
increase would be very small compared to the revenue loss
in the United States from setting a lower price.
(The New York Times Company, 2000)
 Since the United States is wealthier and more
developed than the rest of the world, Americans end up
paying more for prescription drugs. Additionally,

Example
“America's health care system is much more
fragmented” compared to most other countries that
have a single governmental health care provider. With

Analyzation this type of system, health care providers have less

“bargaining power” when “negotiating drug prices.”
Therefore, since the United States would generate
greater revenue with higher drug prices, it is more
beneficial to set high drug prices. This not only
normalizes significantly high prices in the United
States, but it also makes less developed countries (like
Uganda) worse off since they would not be able to
afford the drugs.

(The New York Times Company, 2000)

 Price Discrimination

If a manufacturer was required to sell life saving drugs, like those for HIV and
AIDS, at one single price for every country, those in less developed countries would
find it more difficult to afford the drugs compared to high-income and developed
countries. Revenues that are made in high-income countries are more valuable to
“profit-seeking manufacturers” than are the “small gains” made from selling at a
lower price to those in low-income countries. Therefore, health care providers find
it significantly more profitable to set high drug prices in countries that can afford
them, while setting lower prices in low-income countries.

(Wagner & McCarthy, 2004)

References

The New York Times Company. (2000, September 21). Examining differences in drug prices. The New York

Times. https://www.nytimes.com/2000/09/21/business/examining-differences-in-drug-prices.html

NORD. (n.d.). Prescription drug out-of-pocket costs. NORD. https://rarediseases.org/policy-issues/out-of-pocket/

Sarnak, D. O., Squires, D., & Bishop, S. M. (2017). Paying for prescription drugs around the world: Why is the

U.S. an outlier? Commonwealth Fund. https://doi.org/10.26099/v5m7-yf04

Wagner, J. L., & Mccarthy, E. (2004). International differences in drug prices. Annual Review of Public Health,

25(1), 475-495. https://doi.org/10.1146/annurev.publhealth.25.101802.123042