Paragon Health Institute Icon White
Paragon Pic

The U.S. Spends More on Prescription Drugs Than Other OECD Countries, But U.S. Drug Spending as a Share of All Health Spending is Low

1DG Intldrugpricingforrelease
Director Private Health Reform Initiative at Paragon Health Institute
Theo Merkel is the Director of the Private Health Reform Initiative and a Senior Research Fellow for the Paragon Institute and a Senior Fellow at the Manhattan Institute.
Senior Research Fellow at Paragon Health Institute
Drew Gonshorowski is a Senior Research Fellow at Paragon Health Institute. He brings a decade of experience conducting quantitative research and building models examining health policy and entitlement programs.

The U.S. spends a lower share of overall health care spending on prescription drugs than most developed nations even though in dollar terms the U.S. spends more on prescription drugs than any country.

This is not to say U.S. spends too much or too little on prescription drugs, but it is a crucially important indicator that any excessive U.S. health spending is even more pronounced on other types of care. It also means solutions that are only targeted at lowering prescription drug prices are unlikely to make health care spending sustainable. Moreover, many of the recent advancements in health have come from pharmaceutical innovation and this innovation reduces other types of health care spending.

When the Organisation for Economic Co-Operation and Development (OECD) compared health care expenditures, it found that relative to its peers the U.S. devoted a larger share of health care dollars to hospitals and outpatient care. Furthermore, hospital and physician spending grew at 2 percent annually over the past decade while retail drugs grew at 0.6 percent. This should give pause to policymakers who think expanded price controls are the answer – Medicare has imposed price controls on hospitals since 1983 and physician payments since 1992.

Price controls are so nefarious because they substitute political and bureaucratic judgement over that of market participants and incentivize certain services over others, including where investments are made, with only rigid bureaucratic methods of reevaluation that are poor at discerning value and subject to regulatory capture.

If Congress is going to get serious about lowering health costs for patients and taxpayers, it will need to take a broader view of the problem and learn from past experiences with price controls.

Related Research

No results found.