In countries such as the United States many prescription medicines are really expensive, and it seems like those medicines wouldn’t be that expensive to make. Also many medical procedures seem to be very expensive.
Why is this?
In countries such as the United States many prescription medicines are really expensive, and it seems like those medicines wouldn’t be that expensive to make. Also many medical procedures seem to be very expensive.
Why is this?
The US healthcare system is set up in a way that the normal rules of supply and demand don't work.
With the US healthcare system the assumption is that your insurance provider will pay, therefore the price is not influenced by consumers, instead the drug companies only need to find a price that the insurance companies will agree to.
If drugs were cheap then more people would not see the need for health insurance, so it is in the insurance companies interests for prices to be higher than a normal free market would dictate.
When the supplier and the customer both want high prices, guess what happens.
In countries with a state run healthcare provider you cannot set the prices too high or they will either use an alternative or just not provide the treatment.
Drug pricing is an inherently complex issue, but it helps if you approach it from the perspective of the drug company. When you're attempting to develop a new drug, you need to design, model, and test the formula to prove its efficacy and safety to health authorities. The talent required to complete this process is significant, but even with some of the most talented people, you'll probably fail on the first try. The result of all of this is that there is a very high research and development cost to bring new drugs to market, a cost that is the same no matter the political situation.
However, once you are ready to bring your product to market, the calculation changes: your goal is to recover the research and development cost of not just that medication, but all of the other failed medications, as quickly as possible. And that means pricing the drug to maximize revenue, which is where politics comes in.
Your drug works the same in any political system, but in each system there are different rules. In the United States, you're essentially going to set the price to the highest price that the market will bear, but in other political systems, the government caps the price limit, so you're compelled to sell your medication more cheaply. The revenue from each country is additive, so essentially countries without price caps are subsidizing countries with price caps.
Another way to think about the situation is this: once you've spent the money to develop the drug, you essentially have a token-printing machine. In the United States, each person might give you $100 for each token, but in the U.K. someone might give you $50. But you're still going to sell your tokens in the U.K. because once you have your machine, the tokens don't cost you much if anything to print.
Note that this doesn't fully explain what happens with generics or medical procedures in the United States, which each deserve their own answer, but are too complicated to address here.
Most expensive medicine in the United States is covered by patent. As such, monopoly pricing applies. They price the medicine at the point where they make the maximum profit.
A side issue is that it is expensive to test that the medicine has only acceptable side effects and that it is effective for the purpose for which it is offered. So that puts something of a floor on the price of medicines that they actually bother to test. Perhaps there is some brilliant medicine that simply wouldn't pay for the cost of testing. So it doesn't get tested and it doesn't get approved.
With monopoly pricing, segmented markets are to the advantage of the producer. They can set different prices in each market and therefore maximize their overall profit. This is better for many of the segments, as they pay less for the medicine than they would if the medicine were the same price everywhere. TL;DR: they set the price that each market will bear.
Medical procedures may be expensive in the US for a number of reasons. For example, MRI (magnetic resonance imaging) scans are expensive in the US because a lot of different places have the machines. Each machine needs to be profitable. In other countries, they often have fewer machines that do more scans per machine. The US thus has higher availability but pays more for it.
For some procedures, the chances of medical error or simple failure are high. The way that liability works, this increases the cost of the malpractice insurance. So doctors (or their business managers, since doctors themselves can afford to be a bit unworldly about such things) increase the cost of the procedure to cover.
In general, there is more pressure to see patients quickly in the US than in other countries (e.g. the UK or Canada). The US has something of an immediate gratification problem. Everything is expected to be available now. The MRI situation is a specific example of this. This happens with doctors as well. The US has more doctors in part because people won't accept as long of a delay before seeing the doctor. Other countries triage more, keeping each individual doctor busier. But non-risky situations last longer. A patient may wait months to see a specialist.
There may be other reasons for specific procedures.