Does the U.S. overpay for drugs? Common knowledge says "Yes". Real...
Crémieux@cremieuxrecueil
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May 13, 2025
~2 min read
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Does the U.S. overpay for drugs?
Common knowledge says "Yes".
Real data says "No", because the U.S. gets favorable prices for generic drugs and it primarily consumes generic drugs. In fact, they're 91% of prescriptions!
Common knowledge says "Yes".
Real data says "No", because the U.S. gets favorable prices for generic drugs and it primarily consumes generic drugs. In fact, they're 91% of prescriptions!
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But then, we have a mystery:
If the prices America tends to pay are, in fact, reasonable, then why does it account for such a large share of all global spending on drugs?
If the prices America tends to pay are, in fact, reasonable, then why does it account for such a large share of all global spending on drugs?
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When we think of the U.S. overpaying, we're thinking about 9% of purchases and forgetting the 91% for which it has better prices
The reason the U.S. does so much health spend is not high prices, it's high consumption
America is rich, so it buys a lot of healthcare! For example:
The reason the U.S. does so much health spend is not high prices, it's high consumption
America is rich, so it buys a lot of healthcare! For example:
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The U.S. also accounts for an outsized share of non-prescription purchases, for which the prices are also still fine.
If you want to get to the point where America matches poor countries, just stop right there, because they have lower prices, but also consumption, and quality.
If you want to get to the point where America matches poor countries, just stop right there, because they have lower prices, but also consumption, and quality.
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And, what value does the U.S. get for that high consumption?
Well generally better health outcomes for things the health system actually controls.
But American health lags due to diseases of affluence and violence.
Well generally better health outcomes for things the health system actually controls.
But American health lags due to diseases of affluence and violence.
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Go figure.
America eats itself to death and attempts to eat its way out of eating itself to death, too. That's being absurdly rich for you.
The question is, why bemoan this?
America eats itself to death and attempts to eat its way out of eating itself to death, too. That's being absurdly rich for you.
The question is, why bemoan this?
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This is not to say there's nothing the U.S. can do to lower drug prices and get down spending while maintaining its consumption volume.
There's a massive amount of deregulation that can be done to cut non-generic drug prices and much else, it's just harder than price controls.
There's a massive amount of deregulation that can be done to cut non-generic drug prices and much else, it's just harder than price controls.
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Thread on MFN policy in health:
Jason Abaluck@Jabaluck
Good news everyone! The unpopular and seemingly irrelevant lecture I give in my health econ class on "Most favored nations agreements" just became prophetically relevant.
Bad news everyone! This is a terrible policy.
🧵
Bad news everyone! This is a terrible policy.
🧵
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Elasticities of healthcare innovation to spending:
Nicholas Decker@captgouda24
Across numerous studies, an increase of demand for pharmaceuticals by 100% increases the number of drugs discovered by 154%. Could there be anything more obviously good? How are we such shortsighted fools?
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Some people want to make the baffling decision to talk about total expenditures instead of the price level to answer the question of whether the price level drives total expenditures. That's just reasoning backwards.
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Crémieux@cremieuxrecueil
Another way to think of this:
If you equalized the U.S. and U.K. on prices, distributions of generics vs branded drugs bought, + population size, how large would the script spending gap be?
America would still spend about 2.34x more per capita. Volume explains ~57% of the gap!
If you equalized the U.S. and U.K. on prices, distributions of generics vs branded drugs bought, + population size, how large would the script spending gap be?
America would still spend about 2.34x more per capita. Volume explains ~57% of the gap!
