My wife and I recently decided to do IVF. The doctor specifically told us that we needed to order the medicine (menopur, Gonal F, etc) from an American pharmacy. That alone made me suspicious, so I looked at foreign options. Altogether, the medication required would have cost us about $5000 from American pharmacies. We found out that we can just buy the exact same stuff from a German pharmacy for about $1000. So yes, Americans get wrecked by drug prices.
When my wife needed a rabies post-exposure shot course, it would have been around $25000 range for the shots without coverage. Our (expensive high end) insurance brought it down to "only" $2500 out of pocket for us. The alternative is to take the gamble of a possible horrible death.
The headline is terrible given the thesis of the short article.
The Economist's analysis creates a model that shows Pharma companies making "excess profits" (greater than 10% return on capital) second only to technology companies. In that sense, by the Economist's terms, they are in fact gouging.
But that's not really the point the Economist wants to make; rather, regardless of whatever profits Pharma is raking in, they're in fact a small component of overall health care spending. You could zero out Pharma profits (this is my point and not theirs) and not materially change US health spending.
In all these discussions about American health care, my first take is that everybody should go download the CMS National Health Expenditures, and make a beeline for "Expenditures by Type of Expenditure and Program" (it's just an Excel spreadsheet). It's an extremely intuitive breakdown of where all US health care spending goes, and who's paying for it, all on one sheet.
There are a lot of narratives about health care spending that do not survive first contact with that spreadsheet.
I don't think the spending story alone is helpful because it doesn't acknowledge where there's room for actual improvement. Of the $1.5T spent on "Hospital Care", if almost all of it went to medical staff, facilities, equipment etc, and if good data suggested that people aren't in hospital unnecessarily, maybe that number isn't a problem. But if private hospitals have very fat margins, and some significant share of patients could be served just as well through less expensive clinical services, maybe that's too much.
In the context of the cost of medication, the $449B on "prescription drugs" doesn't break out what goes to drug makers vs PBMs or anyone else. We can easily imagine a world without PBMs that still delivers drugs to patients, but someone has to actually make the drugs. We can also ask, are people on medications they don't actually need? Are we sometimes _causing_ later health issues when medicating (e.g. fueling a giant opioid crisis)? None of this is apparent in the top-line spending figures.
Drug costs are contentious because they're easily visible and often no covered by insurance. The other costs are obfuscated in complex billing and hidden under principle/agent veils.
E.g. my son has a peanut allergy and so we need to buy EpiPens. They were hundreds of dollars, and the vendor played MBA-nonsense games like requiring two to be purchased at a time. Meanwhile I was able to drive to Canada and buy the exact same thing (and as many or as few as I needed) for tens of dollars.
Are you specifically referring to `Table 19 National Health Expenditures by Type of Expenditure and Program.xlsx` in the ZIP archive which can be downloaded at https://www.cms.gov/files/zip/nhe-tables.zip ?
My understanding also is that pharma is a case where you can often show you spend $X on a medicine and it gives $10X or more in savings.
For instance inhaled steroids for asthma can cost an eye-popping $300 a month but some people with asthma get hospitalized once a year at a cost upwards of $8000 so the inhaler is really a bargain.
While that is a great point and should be done, one of the most dysfunctional part of the healthcare system is that the end user / patient doesn’t know how much they will pay if they opt to get a thing done. The obscurity of the price _before_ agreeing to get it done is not reflected at all in data which is 100% hindsight.
My old boss described it this way: without price transparency medical care isn’t a market, it’s a racket. And all of the managers in health care are working to remove price transparency to increase their margins.
As someone who wasted the good years of their life trying to improve the medical system in the USA, there is no piecemeal way to fix it. We were able to save a ton of money but it didn't matter, the saving just vanished into the void that is US medical care and costs went up.
For people who only read the title, note that the article is actually about a slightly different point:
>America is a lucrative market for the world’s drug giants. Many pharma bosses admit that is where they make most of their profits. But are these profits really responsible for America’s ballooning health-care bill? The short answer is no.
I don't think the article is disputing that Americans pay more for drugs than other countries, only that the pharma industry isn't the top gouger (or even above average) in the healthcare industry.
> The bulk of the rents is captured instead by providers of health-care services such as hospitals and the system’s true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity.
Did a ctrl+F for "PBM," and when that failed, "pharmacy" :P And yeah, the thing about drug manufacturers is that they _are_ ripping us off, but at least they do actually provide a useful service. PBMs, by contrast, inflate costs without any real benefit to consumers.
That's your insurance provider that told you no - not "Big Pharma".
Which is what TFA points out as well:
"The bulk of the rents is captured instead by providers of health-care services such as hospitals and the system’s true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity. They have higher costs of capital than drugmakers, but they also clear our 10% hurdle much more comfortably (chart 3)"
It is really surreal to see the Americans on here jump to the conclusion that prices should rise everywhere else, rather than that their prices are simply unnecessarily high as there are no proper pricing mechanisms in the US.
If you do have that view please show me some evidence that the US prices cross fund other countries rather than just pad shareholders' profits and CEO pay. No, not partisan papers (plenty of US right wing think-tank papers which confuse corporate income with actual R&D) but actual data on research subsidies per capita or a similar comparable unit.
I'm intrigued by the premise - I have my own large burden of health care costs and my own suspicions about where it is going - but does anyone else find their charts unreadable? I'm trying to parse the first one and I keep trying to put the pieces together. "Health care services" is 60 out of 101bn ... excess profits?
The second one I can hardly start on, "health care services" is a medium circle ( circle size = combined market capitalization ) with the second highest "Aggregate return on invested capital" and in the middle of "median weighted-average cost of capital".
I know its called "the economist" but they usually make their articles readable by people without a econ degree. If I had a suspicious mind ( I do ) I'd think this was deliberate obfuscation.
Also "health care services ... such as hospitals and the system’s true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity"
That is a lot of different interests bundled together. How can they say insurers are the true money makers when they are not even broken out?
I did a calculation once. US spends $4.9T on healthcare: $2T on personnel, $500B on non-acute drugs (ie OTC + prescribed) and $2.4T on something else.
Germany spends $550B on healthcare: $430B on personnel, $80B on non-acute drugs and $31B on something else.
My guess is that the "something else", which is non transparent, is actually private insurance jacking prices up.
A lot of the cost of US drugs isn't even the drugs or pharmacies, it is the fact that you need an expensive doctors appointment just to have access to those drugs. There are toe nail fungus lacquers that you can buy over the counter pretty much anywhere else in the world, but require a prescription in the US. And even if other places have restrictions on it, it usually amounts to "talk to the pharmacist for 2 minutes first", and not go drop a few hundred bucks on visiting a doctors office first just to say "yep, you got nail fungus!"
Many Americans are literally taking farm animal drugs because it is the only access to those drugs they can afford.
For drugmakers, we treat research and development as an asset that is depreciated over 15 years, which is more or less the lifetime of their patents.
This is not a good assumption. It's a super complicated subject, but what really matters is market exclusivity and I think most industry people would use 8–12 years as a realistic range for small molecule market exclusivity.†
I'm unsure how this revised assumption would alter the conclusions.
I think the problem is the article detaches "Pharmacy-Benefit Managers" from Pharma costs and into "Services" as a separate category... they're definitely closer to Pharma in terms of the structure, where that money goes is up for debate.
There should probably be trade (FTC) violation of some kind from this layer of man in the middle gouging, which is on top of the higher direct prices of the medications to begin with in the US.
> The bulk of the rents is captured instead by providers of health-care services such as hospitals and the system’s true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity.
This category of "providers of health-care services" is rather over-broad, and I wish they had split it up more. Shouldn't hospitals (which actually _provide health care_ and are necessary parts of the healthcare system) be in a separate bucket from the "middlemen"?
And within the hospital category, don't we need to draw some distinctions? Currently in the US there's been press about how recent funding changes are causing a bunch of rural hospitals to shut down. It seems that some hospitals are major money losers, though we as a society may want them to continue to exist (or else a rural person in a medical emergency has no chance of getting care in time). But what's happening at the hospitals that _are_ collecting "rents", esp since in more urban contexts there are often multiple hospitals and one might expect more competition?
Seems like net income margin for an average US company is about ~10% and for big pharm it's ~14%. Regulations are probably what keeps pharma unusually profitable.
I work for a large mail order pharmacy and I will tell you we make no money on over 90% of our prescriptions. Our margin is less than 4%. The space is hyper competitive and obviously consumers are price sensitive. We are incredibly lean - less than 50 staff to run the pharmacy and a fully robotic dispensing line doing the vast majority of the dispensing.
The drug manufacturers are making massive profits, and nobody is stopping them.
Hilariously the whole TrumpRx card is kind of a step in the right direction, I've screamed for years that manufacturers blatantly rip everyone off and if just use a made up discount card system all of a sudden the drug is 30-90% off.
Ideally the government just says the global price is the US price, and eliminates discount cards entirely.
The list price is mostly a starting point for negotiations with PBMs and payers. Drugs are also often aggregated and bundled. So in a lot of cases is unclear what a drug actually costs.
You only get access to the government-negotiated discount, which is from the pharma company list price, if you buy without insurance. But your insurance company already negotiated a discount from that list price (they're not dumb, and any excess dollar they give to Pfizer is a dollar they don't get to deploy elsewhere). From what little we know of the government discount, it is likely in most cases to be a worse price than what you already have access to.
Everything in healthcare is a "small component" if you squint or ask those benefitting but this death by a thousand cuts adds up to a hair under 1/5th of the US GDP. Go single payer or deregulate the living crap out of it, I don't care. I just want this leech of my back.
Single payer doesn't do anything though. Doctors and nurses have significantly better social standing than politicians, so when push comes to shove, the politicians won't be able to make the required structural changes that reduce the labor components of healthcare costs.
Everything else being horrendously expensive does exert an upward lift on pharma prices. Yes, pharma does gouge Americans, no doubt about it.
This is not easy to analyze with complements vs substitutes. Sometimes drugs can be substitutes for other treatments, and sometimes they are complements.
Also, people may be desperately needing one or the other or both. It's not like quitting coffee when the prices are high.
Say that for a certain drug and certain set of medical treatments, they are complementary. If the treatment is jacked up to be expensive, less of it will be performed, and that will create less demand for the drug. So you would think the drug would go cheaper. But the drug vendors can simply use their market power (say it is a patented drug with no generic version available) to stick to their guns and jack their prices too. Then they exert the reverse effect; the more expensive drug will put downward pressure on the complementary treatment.
In this manner, both the drug and the procedures can gradually become expensive together. Though each one is not as expensive as it would be if the other didn't move.
[+] [-] tptacek|5 months ago|reply
[+] [-] CapmCrackaWaka|5 months ago|reply
[+] [-] viccis|5 months ago|reply
In the UK? Around £150-£300 total.
[+] [-] JumpCrisscross|5 months ago|reply
Why do they care? Referral bonus?
Did you report them?
[+] [-] hshdhdhj4444|5 months ago|reply
The other parts of the healthcare system are hidden behind taxes and insurance.
[+] [-] liquid_thyme|5 months ago|reply
[+] [-] deadbabe|5 months ago|reply
[deleted]
[+] [-] tptacek|5 months ago|reply
The Economist's analysis creates a model that shows Pharma companies making "excess profits" (greater than 10% return on capital) second only to technology companies. In that sense, by the Economist's terms, they are in fact gouging.
But that's not really the point the Economist wants to make; rather, regardless of whatever profits Pharma is raking in, they're in fact a small component of overall health care spending. You could zero out Pharma profits (this is my point and not theirs) and not materially change US health spending.
In all these discussions about American health care, my first take is that everybody should go download the CMS National Health Expenditures, and make a beeline for "Expenditures by Type of Expenditure and Program" (it's just an Excel spreadsheet). It's an extremely intuitive breakdown of where all US health care spending goes, and who's paying for it, all on one sheet.
There are a lot of narratives about health care spending that do not survive first contact with that spreadsheet.
[+] [-] abeppu|5 months ago|reply
In the context of the cost of medication, the $449B on "prescription drugs" doesn't break out what goes to drug makers vs PBMs or anyone else. We can easily imagine a world without PBMs that still delivers drugs to patients, but someone has to actually make the drugs. We can also ask, are people on medications they don't actually need? Are we sometimes _causing_ later health issues when medicating (e.g. fueling a giant opioid crisis)? None of this is apparent in the top-line spending figures.
[+] [-] dboreham|5 months ago|reply
E.g. my son has a peanut allergy and so we need to buy EpiPens. They were hundreds of dollars, and the vendor played MBA-nonsense games like requiring two to be purchased at a time. Meanwhile I was able to drive to Canada and buy the exact same thing (and as many or as few as I needed) for tens of dollars.
[+] [-] kspacewalk2|5 months ago|reply
[+] [-] PaulHoule|5 months ago|reply
For instance inhaled steroids for asthma can cost an eye-popping $300 a month but some people with asthma get hospitalized once a year at a cost upwards of $8000 so the inhaler is really a bargain.
[+] [-] thephyber|5 months ago|reply
My old boss described it this way: without price transparency medical care isn’t a market, it’s a racket. And all of the managers in health care are working to remove price transparency to increase their margins.
[+] [-] dang|5 months ago|reply
[+] [-] _DeadFred_|5 months ago|reply
[+] [-] gruez|5 months ago|reply
>America is a lucrative market for the world’s drug giants. Many pharma bosses admit that is where they make most of their profits. But are these profits really responsible for America’s ballooning health-care bill? The short answer is no.
I don't think the article is disputing that Americans pay more for drugs than other countries, only that the pharma industry isn't the top gouger (or even above average) in the healthcare industry.
[+] [-] cryzinger|5 months ago|reply
Did a ctrl+F for "PBM," and when that failed, "pharmacy" :P And yeah, the thing about drug manufacturers is that they _are_ ripping us off, but at least they do actually provide a useful service. PBMs, by contrast, inflate costs without any real benefit to consumers.
[+] [-] tiahura|5 months ago|reply
[+] [-] blindriver|5 months ago|reply
The price in Canada is around $100. Yes, Big Pharma gouges Americans.
[+] [-] newyankee|5 months ago|reply
[+] [-] alephnerd|5 months ago|reply
Which is what TFA points out as well:
"The bulk of the rents is captured instead by providers of health-care services such as hospitals and the system’s true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity. They have higher costs of capital than drugmakers, but they also clear our 10% hurdle much more comfortably (chart 3)"
[+] [-] goobatrooba|5 months ago|reply
If you do have that view please show me some evidence that the US prices cross fund other countries rather than just pad shareholders' profits and CEO pay. No, not partisan papers (plenty of US right wing think-tank papers which confuse corporate income with actual R&D) but actual data on research subsidies per capita or a similar comparable unit.
[+] [-] deadbabe|5 months ago|reply
[+] [-] tiahura|5 months ago|reply
https://www.ama-assn.org/sites/ama-assn.org/files/2025-04/20...
[+] [-] nineplay|5 months ago|reply
The second one I can hardly start on, "health care services" is a medium circle ( circle size = combined market capitalization ) with the second highest "Aggregate return on invested capital" and in the middle of "median weighted-average cost of capital".
I know its called "the economist" but they usually make their articles readable by people without a econ degree. If I had a suspicious mind ( I do ) I'd think this was deliberate obfuscation.
Also "health care services ... such as hospitals and the system’s true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity"
That is a lot of different interests bundled together. How can they say insurers are the true money makers when they are not even broken out?
[+] [-] kalap_ur|5 months ago|reply
[+] [-] giantg2|5 months ago|reply
That something else could also be stuff like malpractice insurance, legal settlements, etc.
[+] [-] AngryData|5 months ago|reply
Many Americans are literally taking farm animal drugs because it is the only access to those drugs they can afford.
[+] [-] PhotonHunter|5 months ago|reply
I'm unsure how this revised assumption would alter the conclusions.
†one reference of many in support: https://pmc.ncbi.nlm.nih.gov/articles/PMC10242760/
[+] [-] tracker1|5 months ago|reply
There should probably be trade (FTC) violation of some kind from this layer of man in the middle gouging, which is on top of the higher direct prices of the medications to begin with in the US.
[+] [-] ktosobcy|5 months ago|reply
[+] [-] abeppu|5 months ago|reply
This category of "providers of health-care services" is rather over-broad, and I wish they had split it up more. Shouldn't hospitals (which actually _provide health care_ and are necessary parts of the healthcare system) be in a separate bucket from the "middlemen"?
And within the hospital category, don't we need to draw some distinctions? Currently in the US there's been press about how recent funding changes are causing a bunch of rural hospitals to shut down. It seems that some hospitals are major money losers, though we as a society may want them to continue to exist (or else a rural person in a medical emergency has no chance of getting care in time). But what's happening at the hospitals that _are_ collecting "rents", esp since in more urban contexts there are often multiple hospitals and one might expect more competition?
[+] [-] xnx|5 months ago|reply
[+] [-] bearjaws|5 months ago|reply
The drug manufacturers are making massive profits, and nobody is stopping them.
Hilariously the whole TrumpRx card is kind of a step in the right direction, I've screamed for years that manufacturers blatantly rip everyone off and if just use a made up discount card system all of a sudden the drug is 30-90% off.
Ideally the government just says the global price is the US price, and eliminates discount cards entirely.
[+] [-] pfisherman|5 months ago|reply
[+] [-] tptacek|5 months ago|reply
[+] [-] potato3732842|5 months ago|reply
[+] [-] coredog64|5 months ago|reply
[+] [-] TheCoelacanth|5 months ago|reply
[+] [-] tboyd47|5 months ago|reply
[+] [-] kazinator|5 months ago|reply
This is not easy to analyze with complements vs substitutes. Sometimes drugs can be substitutes for other treatments, and sometimes they are complements.
Also, people may be desperately needing one or the other or both. It's not like quitting coffee when the prices are high.
Say that for a certain drug and certain set of medical treatments, they are complementary. If the treatment is jacked up to be expensive, less of it will be performed, and that will create less demand for the drug. So you would think the drug would go cheaper. But the drug vendors can simply use their market power (say it is a patented drug with no generic version available) to stick to their guns and jack their prices too. Then they exert the reverse effect; the more expensive drug will put downward pressure on the complementary treatment.
In this manner, both the drug and the procedures can gradually become expensive together. Though each one is not as expensive as it would be if the other didn't move.
[+] [-] unknown|5 months ago|reply
[deleted]