The question of US drug prices

Branded drug prices in the US are typically 1.5 to 3 times higher than in other OECD countries. Several structural factors explain this disparity.

First, at launch, drug prices in the US are set by private entities—primarily pharmaceutical companies—alongside intermediaries such as pharmacy benefit managers (PBMs). PBMs operate within integrated healthcare systems, retail pharmacy chains (e.g., CVS Pharmacy), and insurance companies (e.g., UnitedHealth Group). They purchase drugs at discounts from the official list price but are not required to disclose the net purchase price. This lack of transparency contributes to an opaque system. PBMs, often described as “middlemen,” wield significant power: they negotiate prices on behalf of employers and health plans that bear most of the prescription drug costs, take a percentage of the negotiated savings, and heavily influence where a drug is placed on an insurer’s formulary.

Second, there is a key difference in how prices evolve over time. In the US, branded drugs are regularly repriced, often adjusted upward for inflation. In most other OECD countries, prices are set by a central government body and remain largely unchanged for the duration of the drug’s patent. As a result, a drug that may initially be “only” 50% more expensive in the US than abroad can see that gap widen substantially over time, leading to pronounced long-term price differentials.

What can the US government do to lower prices?

In the United States, the federal government is prohibited from negotiating drug prices directly with pharmaceutical companies. Any change to this framework would require new legislation—a process that must pass through both chambers of Congress. This was one reason President Trump, during his first term, issued an executive order aimed at lowering drug prices, only to see it blocked by a federal judge.

Legislative reform faces significant resistance, including some Republicans who argue that price controls could stifle innovation. In many cases, their opposition is also linked to the economic importance of pharmaceutical companies in their states—firms that contribute substantial tax revenue and maintain strong lobbying influence. These political and economic realities have derailed previous reform efforts, and the likelihood of a law change in the near future remains low.

Against this backdrop, President Trump is exerting pressure on pharmaceutical companies to voluntarily cut prices and expand direct-to-consumer (DTC) platforms. By bypassing intermediaries, such measures could increase pricing transparency, reduce the impact on manufacturers, and deliver a quick political win for the President, who could claim a tangible victory without changing the law.