If you happen to be one of the 131 million Americans who take doctor-prescribed medications, you probably already know that drug prices can feel astronomical. And that’s not an illusion: The costs are significantly higher here than elsewhere. For instance, a diabetes medication called Victoza 3-Pak averages $766 here, while the cost averages $472 in comparable countries. So how exactly are these prices set? And who or what determines that number?
Here’s what you need to know about how medication prices are set in the U.S., and how to save.
How medication pricing works in the U.S.
Drug manufacturers are the first layer where pricing for medications come into play. They decide how much to charge distributors for each dose, usually based on a combination of factors like research and development costs. And the more complex the process, the higher the cost.
But the pharmaceutical company’s rate is certainly not the price that you’ll pay. That’s because the distributors who get a hold of those drugs in turn set prices for pharmacies. Then pharmacy benefit managers (PBMs) can negotiate the prices on behalf of insurers or employers. And finally, PBMs charge you, the patient, the negotiated price at the till.
Of course, if you have health insurance, your insurer would cover a portion of that cost based on the plan you select, assuming it’s a covered medication. And that’s how you come to pay the price you pay for each medication you take.
Why drugs cost more here than in comparable countries
Although it may be easy to point to insurers as the reason for high drug costs in the U.S., they aren’t the only cause. In fact, both public (84%) and private insurers (85%) here cover a similar share of those costs as those in other countries, according to the Peterson-KFF Health System Tracker.
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This issue actually originates in the fact that the costs of drugs in the U.S. start out higher before they get to the insurers. In fact, the U.S. pays more for prescribed medications than any of its peers, at about $1,000 per person. That’s compared to $554 when you average the costs in countries like Switzerland, the U.K., and Canada.
So why the stark difference?
In short: Government regulation. Many other developed countries have systems in place to regulate the costs of drugs as a whole, keeping those more suppressed. (However, that doesn’t mean they can’t increase from year to year.) Meanwhile, in the U.S., drug prices as a whole are not regulated. And when states do attempt to enact guardrails, they are met with lawsuits from the pharmaceutical industry. And it’s only been recently that Medicaid was empowered to negotiate some drug prices, which can help those individuals potentially save on 10 specific medications — but those price changes won’t kick in until 2026.
Ways to save on medication costs
Just because your insurance charges you a certain amount for your medication doesn’t mean that you can’t find ways to save.
For example, it’s usually always cheaper to go with generic versions of drugs whenever possible. Those have the same active ingredient as their name-brand counterparts, meaning they’re just as effective. But because they don’t come with the brand name, they don’t cost as much.
You may also want to ask your doctor about getting your medication in a higher dose and then splitting the pills. Be sure to check either the professional label insert or your patient package insert beforehand to make sure your medication can be safely split. In some cases, your insurance may bill that at a lower rate than you would pay for the same amount of medication you’re currently getting.
Mail order and online pharmacies can also provide a cheaper option for getting a drug. For instance, your insurance may charge a lower copay for those options if you also get a 90-day supply, and you wouldn’t have to pay for transportation getting to the pharmacy each time you need a refill.
Finally, some drug manufacturers will offer patient assistance programs for their medications. Often, qualifying for these programs depends on your income. And the assistance can come in the form of discount cards, or access to lower cost or even free medication. You can find these via websites like NeedyMeds and RxAssist.
Medications go through many rounds of pricing that can impact the size of your credit card tab at your local pharmacy. But if you can take the time to research your options, and talk to your doctor about finding ways to save, you may be able to access your medications more easily and with a smaller price tag.
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