​5 reasons why Americans pay so much for drugs

Gilead Sciences controversial hepatitis C drug Sovaldi is extravagantly expensive both for patients and health care insurers. But exactly how dear it is depends largely on where you live.

What's clear is that American consumers are getting hit with prices that are far more costly than what residents of Norway, England and Canada pay for the same medications. In the case of Sovaldi, Americans with hepatitis C are faced with an $84,000 price tag to secure treatment. People in France pay just over half that amount -- about $43,000 -- for the same course of treatment.

What explains the difference? For one, European governments are the main buyers of medications in their countries, allowing them to drive hard bargains with pharmaceutical companies. That's how Sovaldi ended up half as expensive in France as in America: The French government negotiated a deal that guaranteed its citizens the lowest price in Europe.

In the U.S., no single entity can bargain on consumers' behalf, given the country's patchwork of insurers, employers, and federal and state programs. Domestic prices are more expensive for 93 percent of 40 popular branded drugs than what is charged in Norway, a Wall Street Journal investigation found. The analysis found similar results for medications in England and in Ontario, Canada.

Americans and their lawmakers are taking notice. A bipartisan report issued Tuesday by the Senate Finance Committee that investigated Solvaldi and another Gilead hepatitis C drug, Harvoni, alleges that the price was set to "maximize revenue."

"There was no concrete evidence in emails, meeting minutes or presentations that basic financial matters such as R&D costs or the multi-billion dollar acquisition of Pharmasset, the drug's first developer, factored into how Gilead set the price," Senator Ron Wyden, D-Oregon, said in a statement.

Gilead said in a statement it disagreed with the report and that it priced the drugs "thoughtfully," according to The Associated Press.

The issue isn't only limited to Sovaldi, of course. Below are five reasons why Americans are socked with higher drug prices than residents of other countries.

Lack of bargaining. Other governments bargain on behalf of their citizens, which helps to keep costs down. The biggest U.S. buyer of medication, Medicare, is barred by law from negotiating pricing. That means Americans are largely without the type of bargaining power available to other countries.

High marketing costs. The U.S. allows drug companies to market directly to consumers, which isn't legal in Europe. That means pharmaceutical firms in America typically spend much more on advertising and marketing, ranging from TV commercials to magazine ads, with those costs ultimately getting passed on to consumers. Since the Food and Drug Administration gave the green light to drug advertising in 1997, spending on direct-to-consumer ads has almost quadrupled, according to The Pew Charitable Trusts.

No caps on costs. Some European countries and Canada cap cost increases for drugs. That means a pharmaceutical company can't easily copy what Turing Pharmaceuticals did this year when it jacked up the price of a 62-year-old drug some 5,000 percent, from $13.50 to $750 per pill. England's single-payer National Health Service caps spending on drugs annually and requires the pharmaceutical industry to reimburse it if spending exceeds that limit. Once Canada sets a drug price, pharmaceutical firms may not raise it faster than the rate of inflation or above the highest price in several other countries.

Opaque pricing. Americans can easily check out how much it costs to buy, say, a gallon of milk or loaf of bread, but figuring out how much a prescription medication costs can be difficult. That's because there is no database or other sources of information that track increases in drug prices. If information is power, Americans are largely left in the dark when it comes to what they're paying and when prices will increase.

Lack of rationing or denials. Americans want medical treatment, regardless of the cost or outcome, because of the ideal that patients and doctors should be able to spend whatever is necessary to ensure good care. But other countries sometimes reject paying for medications if they believe the drugs aren't worth the cost. In the U.K., more than a dozen cancer drugs were taken off the treatment list after the government said they cost too much and offered little benefit in return.

England and Norway, which also denies coverage if it believes the drug doesn't offer enough of a clinical benefit to justify a high price, have found that drug companies will offer discounts after getting a government rejection. Needless to say, that's unlikely to gain traction in the U.S.