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.
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.
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.
I'm surprised on the comments here that go: "I had to pay $$$$ for a medication when I could buy that same medication somewhere else for a fraction of it. Therefore Big Pharma gouges America".
That is not evidence that "Big Pharma gouges America". It is evidence that Americans pay a lot more than other countries. Only that. The conclusion doesn't necessarily follow from the premises.
Want to understand why? Read the article's last paragraph:
> 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.
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.
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 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?
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?
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.
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.
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.
The Economist's analysis concludes that the bulk of exorbitant rents in the US is captured by providers of health-care services who take advantage of the healthcare system's opacity:
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.
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.
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.
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[ 3.1 ms ] story [ 50.0 ms ] threadThe price in Canada is around $100. Yes, Big Pharma gouges Americans.
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.
That is not evidence that "Big Pharma gouges America". It is evidence that Americans pay a lot more than other countries. Only that. The conclusion doesn't necessarily follow from the premises.
Want to understand why? Read the article's last paragraph:
> 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.
As always, no one reads anything.
>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 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.
https://en.m.wikipedia.org/wiki/Betteridge's_law_of_headline...
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?
https://www.ama-assn.org/sites/ama-assn.org/files/2025-04/20...
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'm unsure how this revised assumption would alter the conclusions.
†one reference of many in support: https://pmc.ncbi.nlm.nih.gov/articles/PMC10242760/
* hospitals,
* insurers,
* pharmacy-benefit managers, and
* other middlemen.
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.
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.
Many Americans are literally taking farm animal drugs because it is the only access to those drugs they can afford.