NCPA - National Center for Policy Analysis

Prescription Drug Prices Aren't Inflated

October 26, 1999

Why can't American's buy prescription drugs at the same price as people in Mexico? Are drug prices inflated? Should the government control the price of drugs?

Many complaints about drug prices are based on a misunderstanding of how the prescription drug market actually works. A new study released by the National Center for Policy Analysis (NCPA) answers these questions and counters what it calls the top 10 myths of prescription drug costs. Among them:

Myth: Americans pay higher prices for drugs than citizens of other developed countries including Canada and most of Europe.

Reality: Although the prices of some drugs are lower elsewhere, on average, drug prices in Canada, Germany, Switzerland and Sweden are higher than prices in the United States.

Myth: Americans could reduce their drug costs if they paid the same prices as people in such less-developed countries as Mexico.

Reality: Prices for the same drugs do differ in different countries, but Americans cannot get the newest drugs at Mexican prices.

  • The research and development required to develop a drug can cost millions of dollars and take many years, while the cost of actually manufacturing a drug can be small.
  • Manufacturers may price drugs close to production costs in poorer countries, which could not otherwise afford them, and higher in wealthier countries -- more accurately reflecting their value to patients.
  • If patients in every country paid the lower price, there would be no money for research and development and no new drugs.

Myth: Drug costs are rising because of price increases.

Reality: The average price of drugs has increased modestly -- only 3.2 percent in 1998, for example. Overall spending on drugs is increasing primarily due to non-price factors: people are buying more drugs and more newer, expensive drugs.

Source: Robert Goldberg, "Ten Myths about the Market for Prescription Drugs," NCPA Policy Report No. 230, October 1999, National Center for Policy Analysis, 12655 N. Central Expwy., Suite 720, Dallas, Texas 75251, (972) 386-6272.

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