Norway, an oil producer with one of the world’s richest economies, is an expensive place to live. A Big Mac costs $5.65. A gallon of gasoline costs $6.

But one thing is far cheaper than in the U.S.: prescription drugs.

A vial of the cancer drug Rituxan cost Norway’s taxpayer-funded health system $1,527 in the third quarter of 2015, while the U.S. Medicare program paid $3,678. An injection of the asthma drug Xolair cost Norway $463, which was 46% less than Medicare paid for it.

Drug prices in the U.S. are shrouded in mystery, obscured by confidential rebates, multiple middlemen and the strict guarding of trade secrets. But for certain drugs—those paid for by Medicare Part B—prices are public. By stacking these against pricing in three foreign health systems, as discovered in nonpublic and public data, The Wall Street Journal was able to pinpoint international drug-cost differences and what lies behind them.

What it found, in the case of Norway, was that U.S. prices were higher for 93% of 40 top branded drugs available in both countries in the third quarter. Similar patterns appeared when U.S. prices were compared with those in England and Canada’s Ontario province. Throughout the developed world, branded prescription drugs are generally cheaper than in the U.S.

The upshot is Americans fund much of the global drug industry’s earnings, and its efforts to find new medicines. “The U.S. is responsible for the majority of profits for most large pharmaceutical companies,” said Richard Evans, a health-care analyst at SSR LLC and a former pricing official at drug maker Roche Holding AG.

The reasons the U.S. pays more are rooted in philosophical and practical differences in the way its health system provides benefits, in the drug industry’s political clout and in many Americans’ deep aversion to the notion of rationing.

The state-run health systems in Norway and many other developed countries drive hard bargains with drug companies: setting price caps, demanding proof of new drugs’ value in comparison to existing ones and sometimes refusing to cover medicines they doubt are worth the cost.

Kristin Svanqvist, left, heads reimbursement at Norway's state health system, which pays for most prescription drugs in the country, controlling prices in part by weighing cost-effectiveness. Helga Festoy, an economist at the state health system, says it is 'working quite well.'ENLARGE
Kristin Svanqvist, left, heads reimbursement at Norway’s state health system, which pays for most prescription drugs in the country, controlling prices in part by weighing cost-effectiveness. Helga Festoy, an economist at the state health system, says it is ‘working quite well.’ PHOTO: SVEINUNG BRATHEN FOR THE WALL STEET JOURNAL

The government systems also are the only large drug buyers in most of these countries, giving them substantial negotiating power. The U.S. market, by contrast, is highly fragmented, with bill payers ranging from employers to insurance companies to federal and state governments.

Medicare, the largest single U.S. payer for prescription drugs, is by law unable to negotiate pricing. For Medicare Part B, companies report the average price at which they sell medicines to doctors’ offices or to distributors that sell to doctors. By law, Medicare adds 6% to these prices before reimbursing the doctors. Beneficiaries are responsible for 20% of the cost.

The arrangement means Medicare is essentially forfeiting its buying power, leaving bargaining to doctors’ offices that have little negotiating heft, said Sean Sullivan, dean of the School of Pharmacy at the University of Washington.

Asked to comment on the higher prices Medicare pays compared with foreign countries, the Centers for Medicare & Medicaid Services said: “The payment rate for Medicare Part B drugs is specified in statute.”

In the U.S., few payers, public or private, cite cost as a reason to deny drug coverage, partly owing to a traditional emphasis in the U.S. on doctor and patient autonomy. “They don’t want to impinge on individual choices,” said Neeraj Sood, a health policy and economics expert at the University of Southern California.

Medicare Part B, for example, typically covers drugs and services deemed “reasonable and necessary.”


“If it’s a [Food and Drug Administration]-approved drug and prescribed by a duly licensed physician, Medicare will cover it,” saidGail Wilensky, who ran Medicare and Medicaid in the 1990s.

U.S. drug prices—showing regular increases, sometimes steep—are increasingly a focus of congressional probes and vocal criticism by insurers, doctors, politicians and consumers, who bear part of the cost.

Renee Andrews, an Oxford, Mich., resident whose son has juvenile arthritis and other conditions, said she can’t believe how low medication costs are for families overseas who post messages in her online support group. “Their out-of-pocket costs are considerably less than what we’re paying,” she said.

Research spending

The pharmaceutical industry says controls such as those seen in Europe discourage investment in research and deny patients access to some drugs. “The U.S. has a competitive biopharmaceutical marketplace that works to control costs while encouraging the development of new treatments and cures,” said Lori Reilly, an executive at the Pharmaceutical Research and Manufacturers of America, a trade association.

If U.S. pricing fell to European levels, the industry would almost certainly cut its R&D spending, said Mr. Evans, the health-care analyst. “Does the U.S. subsidize global research? Absolutely, yes,” he said.