We Should Stop Subsidizing the Price of Europe's Prescription Drugs

10/10/2011 01:59 pm ET | Updated Dec 10, 2011

An article in the Wall Street Journal caught my eye last week. NICE, the British national health care service's drug regulator, has decided it will not pay for GlaxoSmithKline's new Lupus drug, Benlysta.

What struck me was not NICE's decision but rather the fact, mentioned offhand, that Benlysta costs less than half as much in the U.K. as it does in the U.S. ($15,600 a year, versus $35,000 in the U.S.).

This price difference isn't new. In fact most prescription drugs have an even higher markup in the U.S. I first noticed this difference several years ago. My birth control pill of choice at the time was Triphasil, a pill which costs about $40 a month in the U.S. Even with my deductible, I was paying $10 a month, and my insurance company would only dole it out in one month supplies. My solution? When I was in Europe I would buy six or twelve packets, at $7 each (retail price, no insurance participation). The exact same medication, made by the same manufacturer, cost 82% less in Europe than in the U.S.

At the time I tried to understand this difference. The details are a bit too long to expound on here. But it boils down to this: The U.S. government, responding to pressure from big Pharma, the lobbying arm of the pharmaceutical companies, made it illegal for Americans to buy prescription medications from overseas pharmacies -- with a fine of up to $250,000 and 5 years in prison. This created an artificial price barrier, allowing drug companies to charge one price in the U.S., and a completely different one in Europe and in the rest of the world.

The result is that about 40% of drug company revenues and the overwhelming majority of their profits come from the U.S. market. By paying more for drugs, American consumers are making it possible for consumers in other developed countries to pay much less, in essence subsidizing prescription drug costs for the rest of the developed world.

One reason drug companies have been able to get away with this is that health insurance masks some of these costs. A few years ago, when my doctor prescribed me a blood pressure medication that cost $160 a month in the U.S. and only $30 in Europe, I was able to ignore that 500% markup, because my insurance co-pay was "only" $35.

But of course American consumers do pay for that incredible markup. We pay for it in the form of higher health insurance premiums. We pay for it with medical costs that are now at 17% of GDP and growing. The U.S. annual health expenditure is about $2.5 trillion a year, and prescription drug benefits constitute more than 12% of that number -- more than $300 billion in 2010, or more than 2% of our GDP.

There's been a lot of talk about reducing prescription drug prices, but not a lot of action. Why? My bet is that PhRMA is doing its job well, and both sides of the aisle are indebted to it. But it's about time we, as consumers and citizens, took notice.