The per capita annual drug cost in the US is about $900 and in the UK about $200. How can this be? Drug companies are multinational so we all purchase from the same sources.
There are 2 types of drugs in all countries:
- Generic drugs: no basic research cost, multiple manufacturers and generally low cost. 80% utilization but only accounts for about 20% of national drug costs.
- Brand name drugs: still protected by patent, price includes significant research cost, one manufacturer and generally high cost. 20% utilization but accounts for about 80% of national drug costs.
The formulary: this is the list of drugs provided by a pharmacy or hospital. Although there are thousands of drugs manufactured only a small group are included in a given formulary. A formulary usually includes the least expensive drugs and avoids drugs with duplicate actions. Brand name drugs cause problems since they may be a one of a kind without alternatives.
Prescriber intent: prescribers anywhere usually try to minimize drug costs for the patient by prescribing the lowest cost drugs that treat the medical problem adequately. Unfortunately, US doctors often don’t know which drug is most cost effective and succumb to the advertising of manufacturers.
How it works in the US:
Hospitals must include drugs in the price of hospitalization so hospitals have a restricted formulary constructed to minimize cost. Outpatients are different, insurance companies that pay for drugs usually expect the patient to pay a percentage of the price: 1) generic drugs — small copay 2) moderate price drugs — medium copay 3) expensive drugs — high copay (or no coverage at all).
How it works in the UK:
The NHS sets the price it will pay pharmacies for generic drugs and purchases generics in bulk for hospitals. The UK has forced a “voluntary” agreement on brand name drug manufactures that limits the profit they may make — sometimes called a “cost-plus” arrangement. Pharmacies and hospitals obtain brand name drugs under this national agreement. The National Institute of Health and Care Excellence (NICE) investigates the cost-effectiveness of drugs and provides that information to prescribers.
Conclusion: Most advanced countries like the UK limit drug company profits or simply set prices for drugs. People in other countries enjoy lower drug costs than in the US. Multinational drug companies make large profits in the US because of the lack of a national strategy. And, the US supports the research of many drugs with grants to Universities from taxpayers. The drug companies which are restricted in other countries extract a high profit from US patients and benefit from government research.
Solution: Restrict drug company profits in the US similar to other countries. Mandate the FDA to provide cost-effectiveness data on drugs and devices. Develop a national formulary for Medicare and all other government programs.