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Why Prescription Drugs Cost More in the U.S. (and What Actually Lowers Prices)

Americans pay far more for the same medicines. The drivers are patents, opaque rebates, and fragmented purchasing power. Here are reforms that lower prices without killing innovation.

Editor, The Rational ModerateUpdated October 24, 202616 min read31 sources

Checked The full check
  • 24 claims
  • 22 match a source
  • 0 need one
  • 0 unreachable
  • 2 corrected

22 of 24 claims match a source; 2 corrected

Claim by claim: what the check found
ClaimFinding
In February 2026 CMS published updated materials for the negotiation program, including an updated selected drugs and negotiated prices fileMatches a source
OECD per-capita retail pharmaceutical expenditure averaged USD 766 (PPP) in 2023Matches a source
The U.S. sits above most peers on multiple measures of drug spending and pricesMatches a source
CMS publishes an official downloadable file (xlsx/csv) of selected drugs and negotiated pricesMatches a source
Cross-country studies find brand-name prices drive the U.S. difference; generics are often relatively inexpensive in the U.S.Corrected to match its source
CMS published Maximum Fair Prices for the first set of selected Part D drugs, effective January 1, 2026Matches a source
IRA changes phase in and culminate in an annual out-of-pocket cap for Part DMatches a source
In January 2026, HHS issued guidance on manufacturers offering direct-to-consumer lower prices with anti-kickback safeguardsMatches a source
Negotiated savings depend on how statutory ceilings interact with existing rebates and net pricesMatches a source
Medicare Part D was created in 2006 with a "noninterference" clause limiting federal negotiationMatches a source
The IRA created a negotiation pathway starting with a limited set of high-spend drugs, then expandingMatches a source
In February 2026, federal PBM provisions were enacted to delink Part D PBM compensation from rebates and expand transparency and reportingMatches a source
The U.S. and New Zealand are unusual in permitting broad direct-to-consumer prescription drug advertisingMatches a source
A large share of foundational research is publicly funded (NIH and academic research)Matches a source
Countries with negotiation and price constraints still produce and adopt new medicinesCorrected to match its source
RAND (2018 OECD data): U.S. manufacturer insulin prices were always higher, often five to ten times higherMatches a source
RAND: even after potential rebates, U.S. insulin prices would likely be about four times higherMatches a source
Insulin was discovered in 1921Matches a source
The inventors sold the patent for a nominal amountMatches a source
Eli Lilly, Novo Nordisk and Sanofi dominate much of the U.S. insulin marketMatches a source
Insulin rationing can lead to emergency hospitalizations and deathMatches a source
The IRA includes a $35 per month insulin cap for MedicareMatches a source
Recent reporting describes PBM reforms shifting compensation toward administrative fees with more rebate pass-through and transparency in Part DMatches a source
Germany, England and Canada price-setting descriptions (benefit assessment and negotiation, a cost-effectiveness range, other countries' prices); Canada's market is too small to supply the U.S.Matches a source

Corrected September 25, 2026. An earlier version of this post cited RAND's "International Prescription Drug Price Comparisons" (Figure ES-1) for the finding that brand-name prices drive the U.S. price gap, but linked to a different RAND report, "Comparing Insulin Prices in the United States to Other Countries" (RR-A788-1). Those citations now link to the price comparison report itself, "International Prescription Drug Price Comparisons: Estimates Using 2022 Data" (RR-A788-3, February 2024), published by the Department of Health and Human Services. It finds U.S. brand-name prices were 422 percent of prices in comparison countries, and unbranded generics cheaper in the U.S.

Corrected September 26, 2026. An earlier version of this post said many countries with negotiation and price constraints "still produce and adopt new medicines." The cited sources address adoption, not where drugs are produced, so "produce" is removed. The post now also notes the launch-timing finding of the report it cites (RAND for HHS ASPE, February 2024): over half of new drugs launch first in the U.S., with an average lag of about one year before they launch in another country.

Clarified September 28, 2026. Two passages were broader than their sources. The post said Medicare Part D was created in 2006; the law was enacted earlier, and coverage began January 1, 2006, so the post now says Part D began in 2006. The descriptions of Germany, the U.K. and Canada said Germany uses reference pricing when negotiations fail, that a U.K. manufacturer must meet a price threshold, and that Canada uses reference pricing to keep prices near peer norms. The post now describes each system as the Commonwealth Fund's country profiles do: Germany negotiates prices with health funds after a new drug's added benefit is assessed, the U.K.'s NICE assesses cost-effectiveness, and Canada's provinces negotiate jointly while a federal board regulates the introductory prices of patented medicines.

Corrected September 28, 2026. An earlier version of this post said Germany uses reference pricing when price negotiations fail. When talks fail, an arbitration board sets the price, using European price levels as its standard; reference prices apply to new drugs found to add no benefit. The post now says so, citing Germany's Federal Joint Committee.

Clarified September 28, 2026. The descriptions of Germany, England and Canada now give more detail, each cited to a primary source: Germany's Federal Joint Committee, NICE's methods manual, and Canada's Patent Act and its regulations. The section on NICE was headed "United Kingdom" and now says England, because its sources describe England.

Clarified October 24, 2026. An earlier version of this post showed a bar chart of insulin prices in 2018 that set the U.S. at 1.0 and other OECD countries at 0.25. Its ratio matched RAND's finding, but the bars were drawn to show that ratio, not plotted from data the post publishes. The chart is replaced by a sentence giving RAND's figures: U.S. manufacturer prices were often five to ten times those in 32 other OECD countries, and RAND's analysis suggests U.S. prices would still have been about four times higher even when accounting for potential rebates. Two later references to the chart now point to those figures.

Illustration titled "Why Prescription Drugs Cost More in the U.S." showing three insulin vials over faded charts
Illustration

Series: Cost of Living Crisis (Part 4 of 4)

Executive summary

Americans pay dramatically more for prescription drugs than other high-income countries. The reason is not that U.S. patients consume more medicine, or that the science is uniquely American.

The reason is structural: the U.S. built a market that rewards bargaining power over value. Patents can be extended, intermediaries can profit from opacity, and the biggest payer in the system historically could not negotiate.

This piece uses insulin as the clearest case study, then maps the broader machinery: patents and exclusivity, PBMs and rebates, Medicare rules, and the reforms that reliably lower prices.

I. Introduction: the insulin scandal

Americans ration insulin. Not because it is rare, and not because it is hard to make. Insulin is a century-old drug discovered in 1921,[19] and modern versions are manufactured at scale by companies that sell the same products abroad for a fraction of the U.S. price.

It is worth pausing on the fact that drug pricing is not a frozen debate. In February 2026, CMS published updated materials for the Medicare Drug Price Negotiation Program, including an updated file for selected drugs and negotiated prices. That is the policy system, in real time, trying to turn “negotiation” from a slogan into an operating procedure.https://www.cms.gov/priorities/medicare-prescription-drug-affordability/overview/medicare-drug-price-negotiation-program/selected-drugs-negotiated-prices

That gap is the point. The story is not “insulin is expensive.” The story is that the United States has built a pharmaceutical market where monopoly protection, opaque intermediaries, and fragmented purchasing power allow prices to float far above what other high-income countries pay.

This article uses insulin as the most visible case study, then steps back to the broader system: patents, PBMs, Medicare’s historic inability to negotiate, and the policy levers that can lower prices while preserving real innovation.

II. The price gap, by the numbers

Charts

Medication blister packs (illustrative)

Medication blister packs (illustrative)

Image source: https://commons.wikimedia.org/wiki/File:Pills_in_blister_pack.jpg

OECD benchmark: pharmaceutical expenditure per person

OECD bar chart of pharmaceutical spending per person in USD PPP by country, split into prescription and over-the-counter medicines. The United States has the tallest bar, followed by Germany, Switzerland, Canada and Japan; the OECD average is highlighted in red near the middle.

OECD reports that per-capita expenditure on retail pharmaceuticals averaged USD 766 (PPP-adjusted) across OECD countries in 2023.

What to notice: even the OECD average is a large recurring household cost category, and the U.S. sits above most peers on multiple measures of drug spending and prices.

Medicare negotiation: selected drugs and negotiated prices (2026)

CMS publishes an official downloadable file (xlsx/csv) that can be charted (top negotiated drugs, distribution of 30-day prices, and similar).

Source: Selected Drugs and Negotiated Prices (CMS)

Insulin international comparison

RAND compared 2018 manufacturer prices for insulin in the United States with prices in 32 other OECD countries. U.S. prices were often five to ten times higher, and RAND’s analysis suggests they would still have been about four times higher even when accounting for potential rebates.

Source: RAND: Comparing Insulin Prices in the United States to Other Countries (RR-A788-1)

Two facts can be true at once.

First, the U.S. leads the world in biomedical research, and Americans benefit from many breakthrough medicines.

Second, the U.S. pays far more for the same branded drugs than peer countries do, even when the drugs come from the same manufacturers.

The most consistent finding across cross-country studies is that brand-name prices drive the difference. Generics are often relatively inexpensive in the U.S. The outlier behavior is largely in patented medicines, where countries use negotiation and price-setting mechanisms and the U.S. historically relied on fragmented bargaining power.https://aspe.hhs.gov/sites/default/files/documents/8e057b0a094e6f9b9d01171fce6698f4/international-price-comparisons.pdf

What to notice: the gap shows up in aggregate spending, not just on a few headline drugs.

Sources

What the data implies (in plain English)

When other countries pay less, it is rarely because they discovered a secret cheaper chemistry. It is because they use at least one of the following tools:

  • A single buyer or coordinated buyers who can credibly say “no.”
  • Formal negotiation backed by a reference price.
  • Cost-effectiveness thresholds that set an acceptable price for public coverage.

In the U.S., by contrast, prices are often set in a way that rewards maximizing list price and then negotiating rebates through intermediaries that benefit from complexity.

That is why the harm shows up in real life. Patients delay or skip prescriptions. People ration drugs that are clinically dangerous to ration. Costs spill into medical debt and delayed care.

III. How did we get here?

What changed recently (2025–2026)

Key dates in U.S. drug pricing policy

  1. Insulin is discovered (HHS Office of the Assistant Secretary for…)
  2. Medicare Part D coverage begins, built around private plans, with a noninterference principle that limited federal price negotiation (Social Security Administration)
  3. Negotiated prices for the first selected Part D drugs take effect (Centers for Medicare & Medicaid Services)
  4. HHS issues guidance on how manufacturers can offer direct-to-consumer lower prices with anti-kickback safeguards (U.S. Department of Health and Human Services)
  5. CMS publishes updated Medicare Drug Price Negotiation Program materials, including the selected drugs and negotiated prices file (Centers for Medicare & Medicaid Services)
  6. Federal PBM provisions are enacted to delink PBM compensation in Medicare Part D from rebates and expand transparency (KFF)

The short version is that the U.S. created a pharmaceutical market with three reinforcing features:

  1. Long-lived market power that can be extended or protected from competition.
  2. A supply chain that rewards opacity rather than transparent price competition.
  3. Fragmented bargaining power for the groups that buy the most medicine.

Before getting into the mechanics, it is fair to steelman the case for the status quo.

  • Patents are supposed to do a real job. A time-limited monopoly can make high-risk R&D financeable, especially for first-in-class therapies.
  • Formulary management is not optional. Someone has to decide which drugs get preferred placement, and an intermediary can reduce administrative burden for employers and insurers.
  • Blunt price ceilings can have costs. If policy ignores therapeutic value and uncertainty, it can reduce incentives to invest in high-risk areas or push launches toward the private market.

The problem is that the U.S. version of this system often turns those legitimate functions into open-ended bargaining power. Patents can be extended far past the intuitive “innovation window.” Rebates and spread pricing can reward higher list prices. And fragmentation means no single buyer can reliably say “no.”

That is why the reforms worth taking seriously are not “punish pharma” or “defend pharma.” They are reforms that preserve the reasons the system exists while removing the incentives to exploit it.

1) Medicare’s “noninterference” design (partially reversed)

When Medicare Part D began in 2006,[20] it was designed around private plans. The statute included a “noninterference” principle that limited the federal government’s ability to directly negotiate prices.[21]

Private insurers and PBMs do negotiate, but their bargaining power is constrained. They can threaten to exclude a drug from a formulary, but for many blockbuster medicines the credible threat is weak because patients and physicians demand access.

The Inflation Reduction Act (IRA) changed the direction of travel by creating a negotiation pathway beginning with a limited set of high-spend drugs, then expanding over time.

2) Patents, exclusivities, and the art of extending them

Visual (WordPress-friendly): Patent lifecycle (typical)

PhaseWhat happens
DiscoveryR&D and early patents
Approval & launchNew drug enters market
Core exclusivity windowPrices stay high while competition is blocked
Secondary patents / device tweaksDelivery, dosing, or formulation changes extend protection
Litigation / “thicket”Competition delayed by legal risk and cost
Generic / biosimilar entryCompetition arrives, prices fall

Patents are not inherently illegitimate. A time-limited monopoly can reward innovation.

The problem is that in practice, firms can stack and extend protections well beyond the “20 years from invention” mental model most people carry around.

Common strategies include:

  • Evergreening: filing additional patents on delivery devices, dosing schedules, or minor formulation changes.
  • Patent thickets: building dense clusters of overlapping patents that raise the legal cost and risk for biosimilar competitors.
  • Pay-for-delay: agreements that postpone competition.

The result is predictable. Competition arrives late. Prices stay high longer than the science alone would justify.

3) PBMs and rebate-driven pricing

Visual (WordPress-friendly): Who pays whom (simplified)

  1. Manufacturer sets a list price.
  2. PBM negotiates rebates/fees with the manufacturer.
  3. Insurer or plan sponsor pays the PBM and sets coverage rules.
  4. Patient cost-sharing at the pharmacy counter is often tied to the list price, even when rebates reduce the plan’s net cost later.

PBMs sit between insurers, employers, pharmacies, and manufacturers. In theory, they can use scale to bargain lower prices.

It is also not hard to see why PBMs exist. A single employer generally cannot build the infrastructure to negotiate with thousands of pharmacies and manufacturers, adjudicate claims, and manage formularies. The “PBM as aggregator” is a reasonable concept.

But the problem is incentive design. In February 2026, federal PBM-related provisions were enacted that aim to delink PBM compensation in Medicare Part D from rebates and expand transparency and reporting requirements.https://www.kff.org/other-health/what-to-know-about-pharmacy-benefit-managers-pbms-and-federal-efforts-at-regulation/ Whether every detail works as intended, the direction is revealing: policymakers are increasingly treating opacity itself as a cost driver.

In practice, rebates can distort incentives. A PBM can appear to “save money” by negotiating a large rebate off a very high list price, while the underlying system still pays more than it would in a simpler, more transparent market.

That matters because many patients’ out-of-pocket costs are linked to list prices through deductibles and coinsurance. A large rebate paid later to a plan sponsor does not help a person who is paying at the pharmacy counter today.

PBMs: the case for them and the problem
Why PBMs existWhere the incentives go wrong
A single employer generally cannot build the infrastructure to negotiate with thousands of pharmacies and manufacturers, adjudicate claims, and manage formularies.A PBM can appear to save money by negotiating a large rebate off a very high list price, while the system still pays more than it would in a simpler, more transparent market.
In theory, PBMs can use scale to bargain lower prices.Many patients’ out-of-pocket costs are tied to list prices, so a rebate paid later to a plan sponsor does not help at the pharmacy counter.

4) Direct-to-consumer advertising and demand shaping

The U.S. (along with New Zealand) is unusual in permitting broad direct-to-consumer advertising for prescription drugs.[22] Advertising does not create monopoly power, but it can reinforce it by steering attention toward branded, high-priced products and away from substitutes.

5) The “R&D cost” argument (and what it misses)

The industry argument is simple: high prices fund innovation.

Innovation does cost money, and drug development carries real risk. But the argument is incomplete without two additional facts:

A functioning policy goal is not “low prices at any cost.” It is prices that reward real therapeutic value without turning patents into a blank check.

IV. Insulin as a case study

Visual: how U.S. insulin prices compare internationally

Insulin syringe (illustrative)

Insulin syringe (illustrative)

Image source: https://commons.wikimedia.org/wiki/File:Insulin_syringe.jpg

Comparison: U.S. vs other OECD countries

(See the RAND figures above in the “Price gap, by the numbers” section.)

Source for insulin price comparison

What RAND found (using 2018 OECD data)

  • Manufacturer prices in the U.S. were always higher than in the comparison countries they analyzed, often five to ten times higher.
  • RAND notes that even after accounting for potential rebates, U.S. insulin prices would still likely be about four times higher than in other OECD countries.

Insulin is a near-perfect lens because it is both essential and old.

It is essential because people with Type 1 diabetes cannot substitute away. It is old because the underlying discovery is more than a century old.

A century-old discovery, modern pricing

Insulin was discovered in 1921.[19] The famous telling is that the inventors sold the patent for a nominal amount so it could be widely available.[14][19]

Yet U.S. insulin prices rose for decades and reached levels that forced rationing.

A concentrated market

Three companies dominate much of the U.S. insulin market: Eli Lilly, Novo Nordisk, and Sanofi.[19]

A concentrated market is not automatically a conspiracy, but it is a setting where “shadow pricing” is easier and where competitive pressure is weaker.

Human consequences

When insulin is expensive, people do what rational humans do: they try to stretch it.

Unfortunately, insulin is not a drug you can safely stretch. Rationing can lead to emergency hospitalizations and death.https://aspe.hhs.gov/sites/default/files/documents/b60f396f32e29a2a9469276d9ca80e4b/aspe-insulin-affordibility-rtc.pdf

For a single moral test of whether a market is working, start here. A market where people ration a century-old, essential medicine because of price is not allocating resources efficiently.https://www.nejm.org/doi/full/10.1056/NEJMp1909402

What has changed, and what has not

Public pressure produced policy movement.

The IRA includes a $35 per month insulin cap for Medicare and created the pathway for broader Medicare negotiation.https://www.cms.gov/inflation-reduction-act-and-medicare Some manufacturers also expanded patient assistance programs.

Those steps matter. But they do not fully solve the problem for uninsured people and for patients whose out-of-pocket costs remain connected to list prices.

  • 5 to 10 timesU.S. insulin manufacturer prices compared with other countries, often (2018 data) (RAND)
  • About 4 timesU.S. insulin prices compared with other OECD countries, even after potential rebates (RAND)
  • $35 a monthInsulin cap for Medicare under the Inflation Reduction Act (Centers for Medicare & Medicaid Services)

V. The innovation defense (and the actual tradeoff)

Any serious reform must confront a real tradeoff: if you push prices too low for genuinely breakthrough drugs, you can reduce incentives to invest.

But the current U.S. system often does something different. It allows firms to extract high prices even when additional value is modest, and it lets protections linger even after the core innovation has been recouped.

A better way to frame the question is:

  • What prices and protections are warranted for high-value, first-in-class therapies?
  • What should happen when a drug is old, widely used, and protected mainly by legal engineering?

Other countries answer this through explicit negotiation and cost-effectiveness frameworks. The U.S. has historically answered it through fragmented bargaining and administrative complexity.

Reform is about choosing a more deliberate answer.

VI. Policy solutions that actually lower prices

Visual: what reforms target which problem

ProblemWhat it looks likePolicy lever (section)
Market power lasts too longPatents/exclusivities extended beyond core innovation windowPatent & exclusivity reform
Prices set in the darkList price ↑, rebates obscure net pricePBM transparency + incentives
Largest payer cannot set termsNegotiation exists, but rollout is narrow/slowExpand Medicare negotiation
Essential drugs still unaffordablePatients ration; access depends on insurance statusTargeted tools: caps, importation, public manufacturing

There is no single magic bill. A durable solution is a package that targets each layer of the system.

1) Expand Medicare negotiation (and speed up learning)

The IRA’s negotiation pathway is a structural shift. Once the largest payer can bargain, it changes the baseline expectations about “the market will bear it.”

The most reasonable critique is not that negotiation exists. It is that the initial rollout is narrow and slow relative to the scale of U.S. spending.

A practical direction is to widen the set of drugs subject to negotiation sooner, and to make the negotiation framework more responsive as evidence changes.

2) Use international reference pricing as a backstop

Reference pricing is not a perfect tool, but it is a simple one: anchor U.S. prices to a basket of peer-country prices.

As a backstop, it serves a purpose. If negotiation fails, the reference price creates a ceiling.

3) Patent and exclusivity reform

To lower prices without “punishing innovation,” start with the distinction between innovation and evergreen protection.

Policy options include:

  • Tightening standards for secondary patents that provide limited clinical value.
  • Speeding generic and biosimilar approvals.
  • Increasing scrutiny of pay-for-delay agreements.

The goal is not to eliminate patents. It is to restore the expectation that competition arrives on time.

4) PBM transparency and incentives

PBM reform is about aligning incentives so lower prices flow through to patients.

The live policy debate is moving quickly here. Recent reporting describes reforms that shift PBM compensation toward administrative fees and require more rebate pass-through and transparency in Medicare Part D.https://www.ajmc.com/view/pbm-reforms-signed-into-law-reshaping-medicare-part-d-drug-pricing-transparency

Options include:

  • Requiring clearer disclosure of rebate and spread pricing practices.
  • Encouraging or requiring pass-through models in public programs.
  • Reducing conflicts of interest when the same entity manages benefits and owns pharmacies.

5) Importation (useful, but not sufficient alone)

Importation from Canada is sometimes presented as a silver bullet.

It is not. Canada’s market is not large enough to supply the U.S., and Canada has its own incentives to restrict exports.[27]

But as a targeted tool, it can create competitive pressure and provide relief for specific medicines.

6) A public manufacturing option for essential generics

In markets where competition fails and a drug is essential, a public manufacturing option can function as a price ceiling.

This does not need to become a full government takeover of pharma. It can be a narrow tool for drugs with chronic market failures.

7) Reduce the role of direct-to-consumer advertising

Limiting direct-to-consumer advertising would not solve pricing on its own, but it would reduce one force that supports high list prices by manufacturing demand for branded products.

Seven levers that lower prices
LeverWhat it does
Expand Medicare negotiationWidens the set of drugs subject to negotiation sooner and makes the framework more responsive as evidence changes. (Centers for Medicare & Medicaid Services)
International reference pricingAnchors U.S. prices to a basket of peer-country prices, creating a ceiling if negotiation fails.
Patent and exclusivity reformTightens standards for secondary patents, speeds generic and biosimilar approvals, and scrutinizes pay-for-delay agreements.
PBM transparency and incentivesRequires clearer disclosure of rebates and spread pricing, encourages pass-through in public programs, and reduces conflicts of interest. (The American Journal of Managed Care)
ImportationCreates competitive pressure and relief for specific medicines, but is not sufficient alone.
Public manufacturing for essential genericsActs as a narrow price ceiling for drugs with chronic market failures.
Limit direct-to-consumer advertisingReduces one force that supports high list prices by manufacturing demand for branded products.

VII. What other countries do differently

Other high-income countries vary in details, but most share a common feature: they do not treat the list price as the “starting point” that must be accepted. They treat it as an opening bid.

Germany

Germany requires makers to show a new drug’s added benefit over existing ones; after that, prices are negotiated with the health funds.[24] Under the AMNOG law, in force since January 1, 2011, the Federal Joint Committee (G-BA) assesses within six months of a new drug’s authorization whether it adds benefit over an appropriate comparator. For a drug that does, the national association of statutory health insurance funds and the maker negotiate the reimbursement price; if they cannot agree, an arbitration board sets it, using European price levels as its standard. A drug found to add no benefit goes into a reference-price group within six months of launch; if none fits, a price is still negotiated, and its annual treatment cost may not exceed the comparator’s.[31] Access is broad, and Germany still supports a strong pharmaceutical sector.

England

England uses cost-effectiveness analysis: the National Institute for Health and Care Excellence (NICE) assesses the clinical and cost-effectiveness of new medicines for the health service.[25] Its methods manual, as last updated March 31, 2026, sets the range for most medicines (highly specialized ones have a different level): below £25,000 per quality-adjusted life year (QALY) gained, a decision to recommend a medicine normally rests on the cost-effectiveness estimate; above £25,000, the committee also weighs factors including the uncertainty around that estimate and benefits it does not capture; above £35,000, it needs an increasingly stronger case.[30]

Canada

Canadian provinces negotiate collectively through the pan-Canadian Pharmaceutical Alliance, and a federal board regulates the introductory prices of new patented medicines.[26] That board, the Patented Medicine Prices Review Board, judges whether a patented medicine’s price is excessive, and the Patent Act requires it to consider what the medicine and others in its therapeutic class sell for in other countries.[28] Makers must report their publicly available prices in any of 11 countries named in federal regulations where the medicine is sold: Australia, Belgium, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden and the U.K.[29]

The key lesson

These systems are not anti-innovation. They are anti-blank-check. They separate “pay more for real breakthroughs” from “pay more because the paperwork is engineered to keep competition out.”

How peer countries set drug prices
CountryApproach
GermanyNegotiates prices with health funds after a new drug’s added benefit is assessed under the AMNOG law; a drug that adds no benefit goes into a reference-price group where one exists. (Federal Joint Committee (Gemeinsamer…)
EnglandUses cost-effectiveness analysis: for most medicines, NICE’s cost-effectiveness range is £25,000 to £35,000 per QALY gained. (National Institute for Health and Care…)
CanadaProvinces negotiate collectively [26]; a federal board judges whether patented medicines’ prices are excessive, considering their prices in other countries. (Government of Canada, Justice Laws Website)
United StatesHas historically relied on fragmented bargaining and administrative complexity.

VIII. What will not work

Some ideas sound appealing but fail in practice.

  • Voluntary industry promises. They can change with leadership, market conditions, or public attention.
  • Copay cards. They mask prices rather than fixing them, and can raise total system spending.
  • Importation alone. Scale constraints make it insufficient.
  • Waiting for competition in already-concentrated markets. When entry is blocked by patents and thickets, “the market” will not self-correct on schedule.

IX. Conclusion: affordable drugs are possible

Lower drug prices are not a war on innovation. They are a demand for a market that works.

The U.S. model is not uniquely innovative. It is uniquely permissive. It allows monopoly protections to be extended, hides true net prices behind rebate games, and splinters purchasing power so that the largest payer historically could not negotiate.

A practical package looks like this:

  1. Expand Medicare negotiation faster and more broadly than the initial IRA rollout.
  2. Use international reference pricing as a backstop when negotiation fails.
  3. Reform patents and exclusivities to limit evergreening and reduce pay-for-delay incentives.
  4. Regulate PBMs for transparency and pass-through so savings flow to patients and payers.
  5. Target essential drugs with persistent failures using tools like importation and public manufacturing.

Insulin shows what happens when policy tolerates extraction in a market where people cannot walk away. The fix is not a single magic bill. It is a set of rules that forces the market to compete on value rather than on bargaining power.

Sources and further reading

This article draws on the following primary and high-quality secondary sources.

Additional reading