American Exceptionalism

Americans pay substantially more for prescription drugs than people in other high-income countries, often three to four times as much, even though they use fewer medications and have worse overall health outcomes. This gap has been known for decades, but policy efforts have not significantly reduced prices. The problem is rooted in the structure of the U.S. healthcare system rather than differences in drug quality or medical innovation.

A key factor is the fragmented system of price negotiation. In many other countries, governments or centralized bodies negotiate directly with drug manufacturers on behalf of the entire population, which strengthens their bargaining power. In the United States, negotiation is handled by multiple private entities such as pharmacy benefit managers, each representing only part of the market. This weakens overall leverage and allows pharmaceutical companies to maintain higher prices.

The pricing system also results in wide variation in what different payers spend for the same drug. Manufacturers set high list prices that serve as the starting point for negotiations, and then offer rebates and discounts that vary depending on the size and influence of the buyer. At the same time, regulations often require insurers, especially public programs like Medicare and Medicaid, to cover many drugs, which limits their ability to refuse high-priced treatments or push for lower costs. Other countries are more willing to deny coverage or walk away from negotiations if prices are too high.

In addition, financial incentives throughout the U.S. drug supply chain encourage higher prices. Manufacturers, intermediaries, and providers can all benefit from higher list prices through rebates, markups, or payment structures tied to price. Although recent reforms such as allowing Medicare to negotiate some drug prices are steps in the right direction, the report suggests that broader changes are needed to better align incentives, strengthen negotiation power, and reduce costs for patients.