United States and the World: Prices of Generic Drugs

Today’s Managing Health Care Costs Indicator is 2.4

I’ll be teaching a class on international provider payment this week – and there are two excellent resources recently published.

Ezra Klein has another commentary on the data from the International Federation of Health Plans, showing the vast differences in prices paid for health care services in the US compared to other countries in the Organization for Economic Cooperation and Development (OECD).   These data are adjusted for cost of living. The Washington Post staff created a killer interactive graphic.   

The Commonwealth Foundation has collected much of the OECD data into a small number of very accessible graphics, and these are available here.     

I was surprised to see that generic drugs are the one place where prices in the US are generally LOWER than in other OECD countries – sometimes by a factor of more than three.  I’ve averaged the factors for each country (nonweighted) and the other OECD countries pay 57% less for brand name drugs, but over 2.4 times as much for generics.    It makes sense to be willing to pay more for generics – and recent shortages have shown us the hazard of paying too low a price for generic medications.   It’s also cheaper to pay more for generics than to pay more for brand name drugs.  
Click on image to enlarge.  Source: Commonwealth Fund 

The US relies on market mechanisms –and once patent protection has expired, generic medications represent a much more effective “market” than brand name medications. (There is real competition, information is readily available, and there are low cost of entry and exit from the market.)  Therefore, the US approach genuinely lowers generic prices – while it doesn’t do the same for brand name prescription prices.  Other OECD countries generally use price setting – and for generic medications are paying more than the market alone would demand.

Quick facts:
  •           Generic drugs represent about 65% of prescriptions (Medicare Part D), but less than a quarter of costs
  •           The average price of a generic prescription in the US is under $40, while the average brand name prescription is over $155 (2009 data)