America Pays More for Branded, Less for Generic

Americans are asked to pay the highest prices in the world for brand name pharmaceuticals.  How much higher?  In the report Multinational Comparisons of Health Systems Data, 2009, Johns Hopkins researchers Gerard F. Anderson, Ph.d., and Patricia Markovich provide two examples.  

Lipitor is one of the world's most prescribed medicines to treat high levels of serum cholesterol.  In 2008, it was the most dispensed medicine and the medicine with the most sales revenue in America as you'll see in Table 1 and Table 2 here.  In 2006-2007, Americans and their health plans paid about twice as much as health plans and citizens of seven other nations paid.  Americans paid almost $1 per tablet (or 54 percent) more for Lipitor than Canadians, who paid the next highest price.  (Click to enlarge graph.)

If the graph, above, gives you heartburn, you really won't like what you see next.  Nexium, used to treat gastroesophageal reflux disease, was the seventh most dispensed medicine in America in 2008, but because of its relatively higher price, produced the second largest sales revenue as you can see in Table 1 and Table 2 here.  (Click to enlarge graph.)

Canadians' health plan paid about half what Americans paid for Nexium. Citizens of the United Kingdom, the Netherlands and France and their health plans paid about one-third what Americans paid for Nexium. German's paid only 22.5 percent of what Americans paid for this medicine.  For more on Nexium's history, read this.

One bright spot in America's pharmaceutical costs is in generic medicines.  Our costs are generally lower than those of the rest of the world as Anderson and Markovich demonstrate in this table.  (Click to enlarge table.)

Why are generics less expensive in the United States?  In a study authored by Patricia Danzon, a Wharton health care systems professor, and Michael Furukawa, a Wharton doctoral candidate funded by Merck and Company and appearing in Health Affairs in 2003, competition is an important part of the answer.  

Because some generics are available from multiple sources, whereas branded drugs and some generics are available from only a single source, competition can work to lower prices where multiple manufacturers compete.  In most countries compared with the United States, prices for drugs are negotiated or regulated,  keeping brand name prices lower relative to the U. S., but, according to Danzon, resulting in higher post-patent pricing.  Danzon does not explain why she believes this is so.  

Certainly there is no requirement that lower brand name negotiated prices must lead to higher post-patent pricing.  Post-patent drugs are usually made by a different manufacturer than the brand name manufacturer, so negotiations or price controls could be as strict for generic as for name-brand products.  Perhaps negotiations are based on therapeutic equivalency, so that a country is unwilling to pay much more for Nexium, than for Prilosec, Nexium's predecessor, which is now available as an over-the-counter medicine in America.

Generic drugs, with their lower relative cost and growing share of pharmaceuticals dispensed in the United States -- 68.3 percent in 2008 according to IMS, and growing -- is one bright spot, helping to control overall prescription drug spending in the United States.