This white paper is based on the Policy Brief: International Price Differences for Drug Prescriptions. The National Review also featured Professor Philipson’s oped on the same topic. Many international drug price comparisons conclude that the U.S. has the highest prescription prices in the world. However, these studies typically focused only on brand-name drugs, which represent just 7% of prescription sales volume in the U.S. This analysis evaluates whether the U.S. truly has higher drug prices by examining both brand-name and generic drugs across six developed countries: the U.S., Canada, Germany, the United Kingdom, France, and Japan. We compare the volume-weighted average prescription net prices in the public sectors of the sampled countries. The analysis found that the U.S. public-sector prescription net prices are 18% lower on average than those in the peer countries. We found that this outcome is driven by three key factors in the U.S.: the strong negotiating power of public programs, the large volume of generic drugs, and the low price of generic drugs. The U.S. pricing pattern is efficient because it balances the affordability and incentives for innovation: low-cost generics benefit patients, and high-priced branded drugs help subsidize pharmaceutical innovation for manufacturers. Adopting the U.S. model can reduce global free riding on American-funded pharmaceutical research and development without increasing the overall drug spending abroad. Trade agreement offers a viable pathway to export the U.S.-style reforms.
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