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Why Do Americans Pay More for Drugs?

Pharmaceutical companies have willfully distorted the US prescription-drug market, but nearly all health-care players are complicit. Disrupting such a lucrative, well-entrenched system requires several specific changes – and, above all, the political will to end business as usual.

SAN FRANCISCO – It seems puzzling at first: prescription drug prices in the United States continue to rise at an alarming rate, despite the threat (or promise) of competition from cheaper generic substitutes. But there really is no mystery. Pharmaceutical companies pay players throughout the health-care system to favor their more expensive drugs over lower-priced alternatives. And those who should be acting as watchdogs for patients are happy to go along.

The consequences of this are obvious. Consider Medicare, the US health insurance system for people over the age of 65. Even accounting for rebates, spending by Medicare beneficiaries for brand-name drugs rose 62% between 2011 and 2015. Most of those over the age of 65 did not receive 62% more salary or pension over that period, so the steep rise in prices is causing people real pain.

Precisely how the drug-pricing system works is opaque to the American public, and pharmaceutical firms would like to keep it that way. The contracts between drug companies and key actors in the health-care system are closely guarded secrets, and even government entities and private insurers are not permitted to see the full terms.

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