Raising Prescription Drug Prices Abroad Will Not Lower Prices in the U.S.
Raising Prescription Drug Prices Abroad Will Not Lower Prices in the U.S. (PDF)
President Trump’s “most-favored nation” executive order (EO) claims that drug prices are high in the U.S. because policies in other countries “suppress” prices below “fair market value” and “forc[e] American patients to pay for a disproportionate amount of global pharmaceutical research and development [R&D].” The order directs the Secretary of Commerce and the U.S. Trade Representative to pressure other countries to raise prices.
During President Trump’s first term, the administration also falsely claimed that prescription drug prices are high for Americans because they are lower elsewhere and enlisted the U.S. Trade Representative to help raise medicine prices abroad by lengthening prescription drug monopolies in other countries.
The EO revives Trump’s misguided first-term policy approach—blaming other countries for a U.S.-made problem and using government power to prop up Big Pharma abroad. This approach would entrench monopoly pricing power everywhere while doing nothing to address the affordability crisis in the U.S.
Higher prices in other countries will not generate lower prices in the U.S.
Drug prices are lower in other countries compared to the U.S. because those countries have systems in place to moderate the monopoly pricing excesses of prescription drug corporations. Better deals achieved by other countries are not “subsidized” through higher U.S. prices. There is no reason to believe that raising prices abroad will have any impact on domestic prices. Instead, deregulating or otherwise raising prices abroad would only reinforce corporate power to set high prices.
- According to the Congressional Budget Office, pharmaceutical prices are influenced by a buyer’s willingness to pay and pricing regulations.[1] U.S. prices, therefore, do not represent “fair market value” or a benchmark that other countries should approach but instead show the largely unregulated monopoly power that pharmaceutical corporations have to dictate prices. This power is reflected in rising U.S. launch prices (in 2024, the median launch price for a new drug was over $370,000, double what it had been four years earlier) and regular price hikes (between 2022 and 2023, among drugs with price increases, changes in list prices averaged out to an additional $590 per product, driven by increases in already expensive medicines).
- In a 2004 study, the U.S. Department of Commerce’s International Trade Administration (ITA) found that deregulating prices overseas would not be expected to reduce prices in the U.S.[2] ITA states that patents give manufacturers significant pricing power and that, absent more fundamental changes in the competitive forces operating in markets, prices in different markets will behave relatively independent of one another—with pharmaceutical companies charging profit-maximizing prices in each market. Indeed, when the pharmaceutical industry advocates for deregulation of pricing, it asserts that this will increase revenue, which it argues allows for greater R&D investment.[3] The industry generally does not assert that deregulating prices in certain markets will lead to lower drug prices or lower drug spending in other markets.
High drug prices are a result of pharmaceutical companies’ profit-maximization strategies, not R&D costs.
President Trump states that comparatively high U.S. prices cause Americans to pay for a disproportionate amount of global pharmaceutical R&D. However, drug prices are not linked to R&D costs and do not reflect a proportion of pharmaceutical companies’ total R&D spending. Keeping prices high only serves to fuel pharmaceutical company revenue—the vast majority of which is not spent on R&D at all.
- Drug corporations often claim exorbitant prices are needed to sustain or recoup R&D investments, contending that it costs billions of dollars to bring a drug to market. However, independent analysis suggests that this investment is much lower—the median R&D cost for a new drug is $150 million,[4] according to a recent study. Additionally, top drug companies receive 163% of their global R&D costs from just the excess revenue generated in the U.S., underscoring that these companies often earn well beyond their R&D spending and don’t need to raise prices to maintain R&D investments.
- A drug’s R&D cost bears no relationship to its ultimate price.[5] Rather, brandname drugmakers set prices to maximize profits in each market, continuing to charge high prices regardless of returns compared to R&D spending.[6]
- A congressional investigation into the pricing of Gilead Sciences’ hepatitis C drug Sovaldi (sofosbuvir) and its successor Harvoni (sofosbuvir/ledipasvir) found that “[a] key consideration in Gilead’s decision-making process to determine the ultimate price of Sovaldi was setting the price such that it would not only maximize revenue, but also prepare the market for Harvoni and its even higher price.”
- Top pharmaceutical corporations often spend more elevating stock prices through buybacks and paying dividends to shareholders than they spend investing in R&D. Even the R&D investments they do make are not necessarily “innovative”—the majority of new drugs that hit the market are minor variations on existing medicines and offer no significant clinical benefit over previously available options.
Monopolies drive high drug prices.
Drug corporations’ ability to set excessive prices in the U.S. is derived from government-granted patent and other monopoly privileges. In contrast to countries that regulate prices, the U.S. enables price gouging through limited checks on pricing or abusive patenting practices that stave off the competition needed to bring down prices.
- Driven by expensive patented medicines, drug spending in the U.S. has increased astronomically over the last 20 years. In 2023, the U.S. spent nearly $450 billion on retail prescription drugs—an increase of over 150% compared to 2003. High price patented drugs account for the vast majority of prescription drug spending in the U.S. (87% in 2023), despite these accounting for less than 10% of all prescriptions. Once a brandname drug’s patent-based monopoly ends, robust generic competition can reduce prices by as much as 70–80%, resulting in substantial cost savings.
- Companies use patenting tactics to unfairly impede competition, delaying affordable generic entry and keeping drug costs high.
- The Federal Trade Commission found that one tactic to stifle generic competition (called “pay-for-delay” deals) costs Americans $3.5 billion annually.
- Public Citizen research shows that patent abuses among the first ten drugs selected for Medicare drug price negotiation will have cost Medicare between $4.9 and $5.4 billion by the time negotiated prices take effect, by virtue of inappropriately delaying price-lowering competition.
Exporting pharmaceutical monopolies punishes countries already struggling to afford medicines, while further entrenching prescription drug monopoly rules at home.
Prescription drug corporations are keenly interested in obtaining stronger and longer monopoly periods that delay competition and maintain monopoly pricing power. Historically, the U.S. government has been all too willing to throw its weight behind this effort by using trade policy to pressure other countries to expand pharmaceutical monopolies. At no point has this resulted in lower prices for the U.S. Instead, it can harm people by impeding access to medicines.
- In 1996 after substantial government funding, the first effective combination therapy for HIV/AIDS hit the market at $12,000 a year. At the height of the HIV/AIDS epidemic—with nearly 7,000 people dying a day worldwide—PhRMA and 39 other multinational corporations sued Nelson Mandela and the government of South Africa for providing affordable HIV/AIDS treatment. At the behest of these companies, the U.S. government threatened to withhold trade benefits and impose sanctions if the South African government did not permit pharmaceutical companies to set whatever price they wanted. Between 1998 and 2001—when public pressure finally forced the companies to drop the litigation—690,000 people died from HIV/AIDS in South Africa alone. Today, 29 million people are receiving treatment, largely thanks to generic competition lowering drug prices to less than $40 a year.
- High drug prices restrict patient access and strain health budgets. If the U.S. government were successful in pressuring other countries to let pharma raise prices, even high-income countries’ health systems may nonetheless be unable to bear the new cost pressure. To accommodate higher prices, other cost-containment measures could be implemented, such as reducing utilization or increasing co-payments—making medicines less accessible, less affordable, and encouraging treatment rationing.
To address the root causes of high drug prices, the U.S. should look to its own systems for regulating pharmaceutical competition and pricing.
Instead of allowing prescription drug corporations to dictate foreign policy and continue to price gouge Americans, the U.S. should rein in prices at home. The U.S. government should advance policies to address monopoly abuses, such as drug corporations’ patenting tactics that unfairly delay generic competition. It should also expand existing programs to maximize relief from high drug prices. For example, policymakers should expand Medicare drug price negotiations to bring down the prices of more drugs, for more patients, sooner.[7] Such solutions could include lowering prices by incorporating an international reference price-based ceiling in the Medicare Drug Price Negotiation Program through legislation.
The world needs better systems to fund R&D that directly support innovation and access.
Pharmaceutical companies claim that higher prices are needed to compensate for their R&D investment. However, U.S. taxpayers support a significant amount of federally-funded R&D and yet still are charged the highest prices in the world for prescription drugs. Instead of funding innovation through exclusivities and high prices, policymakers should consider other mechanisms to incentivize private sector investment without allowing pharmaceutical companies free rein to set profit-maximizing prices. Governments, including the U.S. government, should also increase public R&D funding to ensure financing for key foundational research and research into disease areas that Big Pharma fails to prioritize. To that end, a global R&D convention could encourage coordination across countries and help broaden contributions to innovation through greater direct R&D investment.
[1] Congressional Budget Office [CBO], Alternative Approaches to Reducing Prescription Drug Prices (“Manufacturers maximize their global revenue by charging different prices in different market segments, depending on the demand characteristics of those segments. Those demand characteristics reflect differences both in buyers’ willingness to pay and in the regulations affecting prices in various markets. Differences in drug prices paid in different countries in part reflect that market segmentation, as do differences in prices paid by various purchasers within the United States.”); van der Gronde et al, Addressing the challenge of high-priced prescription drugs in the era of precision medicine: A systematic review of drug life cycles, therapeutic drug markets and regulatory frameworks, PLOS ONE, (Aug. 16, 2017).
[2] U.S. Department of Commerce, International Trade Administration, https://web.archive.org/web/20190414170009/https://2016.trade.gov/td/health/DrugPricingStudy.pdf, at 33–4. (“Given the current structure of the U.S. market for both innovative medicines and for generic pharmaceuticals, deregulating prices overseas is unlikely to reduce prices in the United States in the short term. The rationale for this conclusion is relatively straightforward and lies in the basic characteristics of the industry.”).
[3] See, e.g., PhRMA https://phrma.org/resources/phrma-special-301-submission-2025 (“Ending damaging pricing policies in these markets and others could add billions of dollars to research and development for new medicines and lower overall health care costs in the United States and around the world.”) (Arguing that the pharmaceutical industry will take the increased revenue generated from increased prices and invest those revenues in R&D that will lead to new drugs. They argue that this will ultimately lead to a lower burden on health systems, reducing overall health costs.).
[4] Even after adjusting for cost of capital and discontinued products, the study still finds that the R&D cost for a new drug is several times lower than industry claims (finding the median cost after adjustment is $708 million).
[5] CBO, Research and Development in the Pharmaceutical Industry (Aug. 2021) (“In CBO’s assessment, current R&D spending does not influence the future prices of the drugs that result from that spending.”).
[6] CBO, Research and Development in the Pharmaceutical Industry (Aug. 2021) (“…when drug companies set the prices of a new drug, they do so to maximize future revenues net of manufacturing and distribution costs. A drug’s sunk R&D costs—that is, the costs already incurred in developing that drug—do not influence its price.”); ASPE, Prescription Drugs: Innovation, Spending, and Patient Access (2016) (“…the relationship between R&D costs and drug prices is subject to a number of misconceptions. In reality, the prices charged for drugs are unrelated to their development costs. Drug manufacturers set prices to maximize profits. At the time of marketing, R&D costs have already occurred and do not affect the calculation of a profit-maximizing price.”).
[7] For more information, see https://www.citizen.org/article/principles-to-inform-drug-pricing-access-and-innovation-policy/ and https://www.citizen.org/article/public-citizen-letter-to-doge-billions-in-potential-federal-savings-from-drug-pricing-action/