OBJECTIVES: Spending on prescription drugs in key OECD countries has increased by 50% or more in the last ten years, raising questions about overall system sustainability. The study analyses possible reasons for differences in prices and volumes consumed across key OECD countries, taking into account national differences in pharmaceutical policy and regulatory mechanisms. METHODS: Panel data modelling is used to investigate the effect of pharmaceutical pricing and reimbursement regulations, drug promotion, drug use, and competition on price levels. Data are from IMS Health and the US Federal Supply Schedule and include top-50 selling on patent and generic prescription drugs used in the study countries. Regulatory variables are included as dummy variables in the model. RESULTS: Preliminary results suggest that: a) cross-country price comparisons are only meaningful if the right prices are compared in each case. Here, we demonstrate how significant price differences are when ex-factory prices are compared and how these differences narrow down significantly when public prices are compared across countries; b) It seems that price differences of originator brands between the US and Europe have been exaggerated; generic prices are very often significantly lower in the US than in other countries; c) Cross-country public price differences and cross-country ex-factory price differences are not the same across the study countries; d) Off-patent originator brands account for a significant proportion of the price variation between US and the other study countries; e) Pricing regulation accounts for a considerable proportion of the variation in prices across the study countries; and f) Distribution and taxation can contribute significantly to the total cost of prescription medicines that health insurers pay. CONCLUSIONS: Price differences are significant when ex-factory prices are compared but are significantly reduced when public prices are compared across countries. Regulation, distribution, and taxes are key contributors to the total cost of medicines paid by insurers.