Drug Pricing

Drug pricing policy determines what Americans pay for prescription medications — and why U.S. prices are typically two to four times higher than in Canada, Germany, the United Kingdom, or Japan for the same drugs. The core reason is that the U.S. government has historically not negotiated drug prices with pharmaceutical manufacturers the way other countries' governments do; instead, prices are set by manufacturers and negotiated privately with insurers and pharmacy benefit managers. The Inflation Reduction Act of 2022 was a landmark change: for the first time, it authorized Medicare to negotiate prices directly with drug companies for a small set of high-cost drugs, beginning with 10 drugs in 2026. It also capped insulin costs at $35 per month for Medicare beneficiaries and established an out-of-pocket cap of $2,000 per year for Medicare Part D drug costs. Pharmaceutical companies argue that high U.S. prices fund the global research and development pipeline that produces new drugs; critics respond that much fundamental drug research is publicly funded through NIH grants. The pharmacy benefit manager (PBM) industry — intermediaries between insurers and pharmacies — has come under bipartisan scrutiny for taking rebates that may not reduce costs for patients. Drug shortages, particularly for generics, have become a recurring crisis affecting hospitals and patients. The cost of newer biologic medications — including GLP-1 drugs for obesity and diabetes like Ozempic and Wegovy — is creating a new wave of affordability debates as these drugs gain widespread use.