U.S. spending on prescription medication is the highest in the OECD, data from the organization shows. President Donald Trump on May 12 signed an executive order to try and change this status quo. However, experts have said the feat will be difficult due to the complicated structure of international medication prices and a long timeline ahead.
Trump in January and April had already revoked the former administration’s and then signed his own executive order aimed at lowering prescription drug cost in Medicare and Medicaid. On May 19, yet another order stipulated that new pharmaceutical production plants in the country can be approved faster, among other things. This is in preparation for upcoming pharmaceutical import tariffs, which are believed to nudge the prices of drugs in the country towards the more expensive rather than the opposite.
The May 12 order suggest that the U.S. will present drugmakers with maximum prices they can charge for their medications, based on a so-called “most favored nations” approach, i.e. prices comparable to what other rich nations charge. Inside of the OECD, this is significantly less, even when applying purchasing power parity. While U.S. prescription drug spending in 2022 stood at $1,218 per resident on average, this was $1,008 in Germany, $889 in Canada and $757 in Japan in the most recent available years.
In some countries, the average cost of prescription drugs was even lower, at below $500 in Spain, Australia and Norway, for example, and at around $350 in the United Kingdom. Interestingly, at least when applying a PPP approach, household out-of-pocket spending on prescription medication wasn’t the highest in the United States as the country was overtaken by eight out of 32 countries, including Hungary, South Korea, Norway, Switzerland and Canada.
KFF identified the May 12 executive order as a wish list rather than an actual tool to lower prices. While it says that the Department of Health and Human Services shall provide a framework to enforce these price levels, this could be years in the making, fraught with legal challenges and get even more complicated if Congress would need to get involved.
Drugmakers have long objected to U.S. price caps as they have maintained that the United States is where they earn the money to finance future innovation. Reports have, however, cast doubts on this narrative, as pharmaceutical companies were found to spend most of their budgets on non-research-related items, high salaries and even stock buybacks. While it is true that drugmakers earn a lot of money in the United States due to other countries capping prices, negotiating more or even rejecting new drugs, this doesn’t necessarily mean that other nations are missing out. New treatments are to the contrary often rejected overseas due to their limited improvements over cheaper, existing treatments. However, it is possible that a future change of course in the U.S. would have a chilling effect on drug research by companies and could influence the slight edge the U.S. is thought to have in the quality of care over other developed nations.
Another issue influencing high U.S. drug prices are stronger parent protections, limiting generic medications at times. The United States is also not sufficiently regulating middlemen like pharmacy benefit managers. These act as intermediaries between insurers and patients on the one side and pharmacies and drug manufacturers on the other. But since they are part of health care companies, they usually act in their owners’ interest by marking up prices, choosing more expensive medications, asking for fees from manufacturers and the like, all while claiming to create savings through bargaining.
