U.S. vs. EU: Not a Direct Comparison When It Comes to Drug Pricing

One topic that keeps popping up is comparisons of U.S. and ex-U.S. countries’ drug prices and health spending. It’s a challenging comparison, given the big differences in the countries’ economies, health care systems, payment mechanisms and even disease prevalence. RAND is the latest organization to conduct such a study, but theirs still needs to be considered within broader health spending and pricing contexts.

Why is it so challenging to compare countries’ drug prices, and what do we need to consider when we see these kinds of studies?

First, it’s important to recognize that the countries chosen for comparison have different types of health care payment and delivery systems. Some are government-run health programs, others have both public and private options, and none are exactly like the United States. Additionally, some countries negotiate directly with biopharmaceutical manufacturers; others do not. Importantly, the types and prevalence of diseases differ among countries, so one country could be spending more on cancer medicines vs. diabetes treatments, for example, which could skew spending trends.

Second, the methodologies used to examine prices impact the outcomes of the study. The RAND study used wholesale or list prices, rather than net prices, in their primary analysis. It’s an important distinction, especially because net price is the actual price that is paid, once rebates, discounts, coupons and other factors are taken into account. Relying on wholesale or list prices greatly inflates the numbers.  

Third, it’s important to understand that medicines are not the only driver of health care spending, and they aren’t always the largest driver. A Kaiser Family Foundation study examining health care spending found that outpatient and inpatient care costs account for over three-fourths of the disparity in health spending per person between the U.S. and other high-income countries. In fact, the study found that U.S. health spending is mostly driven by higher payments to hospitals and physicians – $6,624 per person in the U.S. compared to $2,718 per person in other countries. Prescription drugs, on the other hand, made up only about 10% of the overall cost of health care – about $1,397 per person in the U.S., while comparable countries spent $884 per person. The study also suggested that if we lowered drug prices to those in other countries, we would reduce this disparity by just a few percent; if we eliminated drug spending entirely, we would still spend almost double what other countries spend on health care.

As we’ve noted previously, there is value in examining all varieties of health care data. But we need to understand the limitations of the underlying data and the idiosyncrasies of the world’s largest health care market when drawing conclusions and developing policy proposals based on results from a few studies.

That’s more important now than ever, as policymakers are considering a “most favored nations” model – in which prescription medicine prices are pegged to those in specific foreign countries – for price-setting in the United States, along with other proposals that are loosely based on so-called pricing studies. Relying on European or global data points might lead us to make policy decisions that aren’t best for our economy or our very citizens we are trying to help through improved health care and outcomes.

Instead, let’s dig in and really ask tough questions about how much should we be spending, and upon what? Should health care resources be shared equally or geared toward the few who are most ill? Can we identify the specific places we can cut spending, so we can invest more in breakthroughs or what will benefit patients most? And if we cut spending in one area, will there be unintended consequences for patients and our health care system?

While there has been some progress in understanding these spending issues and testing solutions, more work needs to be done. Above all, it needs to be done with input from all health care stakeholders, and with the interests of patients top of mind.