Pharmaceutical Prices: Why Are U.S. Drug Costs So High?
Why U.S. Prescription Drug Prices Are Higher Than in Peer Countries
High U.S. brand-name drug prices reflect several interacting factors, including limited direct competition during exclusivity, insurance, payer bargaining conditions and weaker direct price constraints than in many peer countries. PBM contracts, specialty-drug market structure and benefit design can also affect prices and payments at different points in the system.
RAND's 2024 analysis of 2022 data found a U.S. manufacturer-price index of 278 relative to 100 for 33 OECD comparison countries. The index was 422 for brand-name originator drugs and 67 for unbranded generics, showing that the international price gap is concentrated in branded originator medicines rather than all prescriptions.
Prescription drug prices are distinct from total pharmaceutical spending and patient out-of-pocket costs. Spending also depends on utilization and product mix, while patient costs depend on insurance coverage and cost-sharing rules.
RAND comparison using 2022 data from the United States and 33 OECD countries.
The largest U.S.–international difference was concentrated in originator brands.
U.S. unbranded generic prices were below the combined comparison-country level.
Negotiated prices for initial price applicability year 2026 took effect January 1, 2026.
Drug Price, Drug Spending and Patient Cost Are Different Measures
Drug price
The amount assigned to a medicine at a particular point in the payment chain. Depending on the dataset, this can be a list price, manufacturer invoice price, estimated net price or pharmacy transaction price.
Drug spending
Total expenditure depends on both price and utilization. Spending can rise because medicines become more expensive, because more prescriptions are used or because treatment shifts toward higher-priced products.
Out-of-pocket cost
What a patient personally pays through deductibles, copayments or coinsurance. It can differ substantially from both manufacturer-level prices and the health plan's net cost.
How Large Is the U.S.–International Prescription Drug Price Gap?
RAND's 2024 study of 2022 IQVIA MIDAS data compared prescription drug prices in the United States with 33 OECD countries. RAND reports its headline results as manufacturer gross-price comparisons.
The underlying IQVIA MIDAS observations are manufacturer list or invoice prices depending on the country and can include customary on-invoice discounts. They do not capture all confidential off-invoice rebates and other post-sale concessions.
RAND U.S. manufacturer price index, comparison-country level = 100
| Drug category | U.S. index | Data year | Interpretation |
|---|---|---|---|
| All prescription drugs | 278 | 2022 | RAND headline manufacturer-price index across all included prescription drugs. |
| Brand-name originator drugs | 422 | 2022 | The international price gap was substantially larger for originator brands. |
| Unbranded generics | 67 | 2022 | U.S. prices were about one-third below the combined comparison-country level. |
These are manufacturer-level price comparisons, not patient copayments or direct measures of total national pharmaceutical spending.
Rebates narrow the brand-price gap but do not eliminate it
RAND estimated that U.S. brand-name originator prices were 308% of comparison-country prices after applying its estimated rebate adjustment to U.S. retail-dispensed brand-name originator drugs. The estimate does not adjust comparison-country prices for confidential rebates that may also exist outside the United States.
Brand and Generic Drugs Show Sharply Different Price Patterns
The chart uses the RAND 2022 indexes above. The combined comparison-country level equals 100, and bar lengths are scaled to the U.S. brand-name originator index of 422.
What Drives High U.S. Prescription Drug Prices?
Available evidence does not isolate the share of the international price gap attributable to each factor. Several mechanisms operate at the same time and affect different parts of the market.
Exclusive sales rights limit direct competition
Patents and FDA regulatory exclusivities can protect new brand-name drugs from direct generic or biosimilar competition. CBO identifies exclusive sales rights as an important determinant of brand-name prices because they increase manufacturers' negotiating leverage.
That leverage can be particularly strong when a medicine has no close therapeutic substitutes and weakens when competing brands, generics or biosimilars enter.
The U.S. uses fewer direct regulatory price constraints than many peer countries
Medicare, Medicaid, commercial insurers, employers and other purchasers operate under different pricing rules rather than one national pharmaceutical pricing mechanism. CBO notes that many high-income foreign countries constrain manufacturer prices through stronger regulation or greater purchaser sensitivity to price.
Within the U.S., statutory rebates, negotiated rebates, formularies and other rules differ by payer, so the same medicine can generate different net prices in different market segments.
Insurance reduces exposure to the full drug price
Prescription coverage protects patients from potentially large expenses, but insured patients usually do not face the full price directly. CBO identifies insurance as one factor that can make demand less sensitive to price.
Deductibles, copayments, coinsurance, formulary tiers and utilization-management rules determine how much of the underlying cost reaches the patient.
Rebates and PBM contracts create multiple price layers
Manufacturers can pay rebates or other concessions to insurers or PBMs, often in connection with formulary access and utilization. Those arrangements can reduce a purchaser's net cost even when a higher list or invoice price remains visible elsewhere in the system.
PBMs also negotiate with pharmacies and plan sponsors, so the amount paid by one participant is not necessarily the amount ultimately retained by another.
Many newer specialty therapies enter at high prices
CBO notes that many recently approved medicines are specialty drugs, that many specialty drugs are biologics and that such products frequently have high prices.
ASPE also found that the United States devotes a higher and growing share of drug spending to newer medicines than comparison countries, affecting total spending as well as product mix.
Direct generic competition puts downward pressure on prices
FDA reports that one generic competitor can lead to an approximately 30% price reduction, while five competing generics are associated with reductions approaching 85% compared with the brand price.
These are observed competitive patterns, not guaranteed reductions for every medicine.
How the U.S. Drug Price Chain Works
1. List price or WAC
Wholesale acquisition cost is a manufacturer-reported catalog price to wholesalers or other direct purchasers before discounts and rebates. It is a reference price, not necessarily the amount actually paid.
2. Manufacturer gross or invoice price
The transactional price paid to the manufacturer by distributors or other buyers can reflect on-invoice discounts. RAND distinguishes this concept from WAC and from prices after off-invoice rebates.
3. Manufacturer net price
The amount remaining after applicable manufacturer rebates, discounts and other concessions. Exact net prices can be commercially confidential and vary across purchasers.
4. Patient out-of-pocket cost
The amount personally paid by the patient under the insurance benefit. Deductibles, copayments, coinsurance, formulary placement and statutory protections can all change this amount.
One medicine can have several economically relevant prices
A high list price does not mean the manufacturer retains that entire amount, and a lower manufacturer net price does not guarantee a low pharmacy bill for every patient. Payments, reimbursements, rebates and discounts flow among manufacturers, wholesalers, pharmacies, PBMs, plan sponsors, insurers and patients.
Why Generic Competition Can Reverse the Price Pattern
Unbranded generics accounted for 90% of U.S. prescription volume but only 8% of manufacturer-level sales in RAND's 2022 IQVIA dataset. Their U.S. price index was 67 relative to 100 in the OECD comparison countries.
FDA-approved generics can compete directly with the corresponding small-molecule brand product after relevant exclusivity barriers are cleared. FDA's economic summaries show that prices generally decline as additional generic suppliers enter.
Biosimilar competition can develop differently because biologics are more complex to manufacture and the pathway is not identical to conventional generic entry. More competing products can reduce an incumbent manufacturer's pricing leverage.
How Pharmaceutical R&D Affects Prices — and How It Does Not
Drug development is expensive and uncertain, and expected future revenue influences whether companies invest in new R&D. CBO reported about $83 billion in pharmaceutical R&D spending in 2019 and summarized published estimates of average development cost per successful new medicine ranging from less than $1 billion to more than $2 billion when failed projects and capital costs are included.
Those figures do not mean that a marketed medicine's price is calculated by adding historical R&D cost to production cost. CBO explains that once development expenditures have already occurred, they are sunk costs. Manufacturers set post-approval prices prospectively according to expected revenue, demand, competition and other market conditions.
Expected future prices still matter before investment decisions are made. CBO concludes that policies reducing expected future pharmaceutical revenue can reduce incentives for some R&D. Historical R&D spending therefore does not mechanically justify a particular market price.
Where Pharmacy Benefit Managers Fit Into U.S. Drug Pricing
PBMs administer prescription drug benefits for insurers, employers and public programs. Their functions can include formulary management, pharmacy-network contracting, claims processing and negotiation of manufacturer rebates.
CBO explains that insurers and PBMs can obtain larger rebates when they have credible ability to steer utilization toward preferred medicines. Those rebates can reduce net prices for purchasers even when public list prices remain higher.
In a January 2025 interim report, FTC staff found that the three largest PBMs and their affiliated pharmacies generated more than $7.3 billion in dispensing revenue above estimated acquisition costs on 51 specialty generic drugs studied from 2017 through 2022. The finding applies to that defined sample and is not an estimate of total PBM profit or the entire U.S. prescription market.
What Changed for Medicare Prescription Drug Costs in 2026?
Two major Medicare Part D changes are relevant in 2026. They affect defined Medicare populations and do not create one nationwide price rule for all U.S. prescriptions.
First 10 negotiated Medicare drug prices
Negotiated maximum fair prices for the first cycle of 10 selected Part D drugs took effect January 1, 2026. The 10-drug figure applies specifically to this first cycle; later negotiation cycles cover separate cohorts and effective years.
CMS estimated that if the negotiated prices had applied to 2023 utilization, Medicare net covered prescription drug spending on those drugs would have been about $6 billion lower, or approximately 22% lower in aggregate. CMS projected about $1.5 billion in aggregate beneficiary out-of-pocket savings for 2026.
$2,100 annual out-of-pocket threshold
CMS set the 2026 standard Part D annual out-of-pocket threshold at $2,100, reflecting the indexed update from the $2,000 threshold introduced in 2025.
The threshold applies to qualifying beneficiary out-of-pocket spending under Part D benefit rules. It does not cap the manufacturer's price, pharmacy reimbursement or total amount paid for the medicine by all parties.
Key Evidence on U.S. Prescription Drug Prices
Search or filter the evidence by topic. The figures cover different markets and years and should not be added together as shares of the overall U.S.–international price gap.
Selected evidence on U.S. drug pricing
| Evidence | Observed value | Period | Source / interpretation |
|---|---|---|---|
| Price pattern with one generic competitor | About −30% | FDA summary | FDA: one generic competitor can lead to an approximately 30% price reduction. |
| Price pattern with five generic competitors | Nearly −85% | FDA summary | FDA: five competing generics are associated with price declines approaching 85%. |
| Dispensing revenue above estimated acquisition cost on studied specialty generics | >$7.3B | 2017–2022 | FTC staff analysis of the Big Three PBMs' affiliated pharmacies and 51 specialty generic drugs. |
| Pharmaceutical R&D spending reported by CBO | $83B | 2019 | CBO estimate showing the scale of pharmaceutical R&D investment; not a formula for individual drug prices. |
| First Medicare negotiation cohort | 10 drugs | IPAY 2026 | CMS: negotiated prices became effective January 1, 2026. |
| Estimated savings if first-cycle prices had applied to 2023 | ≈$6B / 22% | 2023 basis | CMS counterfactual estimate for the first 10 negotiated drugs. |
| Medicare Part D annual out-of-pocket threshold | $2,100 | CY 2026 | CMS standard Part D benefit parameter for calendar year 2026. |
What the Evidence Means
The U.S. price gap is concentrated in originator brands rather than distributed evenly across all prescription drugs. Unbranded generics show the opposite pattern, with U.S. prices below the comparison-country level.
No single participant explains the entire difference. Manufacturer exclusivity, therapeutic alternatives, payer bargaining, insurance design, statutory pricing rules, PBM and pharmacy arrangements and generic or biosimilar competition affect different points in the pricing chain.
Methodology and Evidence Limits
Evidence was reviewed through September 23, 2026. Priority was given to RAND research conducted for HHS/ASPE and to primary U.S. sources from CMS, FDA, CBO and FTC. Figures are reported for their original measurement years; the 2026 date refers to the evidence snapshot.
International price comparison
The headline 278, 422 and 67 indexes come from RAND's 2024 analysis of 2022 IQVIA MIDAS data. RAND characterizes the headline results as manufacturer gross-price comparisons.
What MIDAS observes
RAND states that MIDAS contains manufacturer list or invoice prices depending on country. Invoice prices can reflect customary on-invoice discounts, while confidential off-invoice rebates and other concessions generally are not fully observed.
Rebate-adjusted comparison
RAND's specific rebate-adjusted estimate for U.S. brand-name originator drugs is 308% of comparison-country prices. This estimate applies RAND's U.S. retail-brand rebate adjustment and does not include equivalent confidential rebate adjustments for comparison countries.
CBO scope
CBO's 2024 prescription-drug pricing analysis focuses on drugs purchased through retail channels. It excludes drugs administered by physicians or other health professionals in outpatient settings or hospitals, so CBO-based pricing conclusions on this page are used within that stated scope.
Policy snapshot
Medicare statements describe calendar year 2026 rules and the first negotiation cycle with prices effective in 2026. Later negotiation cohorts are separate and are not counted in the 10-drug first-cycle total.
Evidence scope
FTC findings on specialty generics apply to the medicines, PBMs, affiliated pharmacies and years studied. CMS savings figures are program-specific estimates for selected Medicare drugs and should not be extrapolated directly to the commercial market, Medicaid or all U.S. prescriptions.
International comparisons have limitations. Product availability and drug mix differ across countries, confidential rebates are not fully observable, exchange rates affect cross-country conversions and national reimbursement systems differ. RAND uses price-index methods and sensitivity analyses to improve comparability, but its results are population-level comparisons rather than universal ratios for every medicine.
FAQ
Are prescription drugs more expensive in the United States than in other countries?
Overall manufacturer-price indexes are higher, but the difference varies sharply by category. RAND's 2022 indexes were 278 for all drugs, 422 for brand-name originators and 67 for unbranded generics, with the comparison-country level set to 100.
Are the RAND figures simply U.S. list prices?
No. RAND's underlying IQVIA MIDAS observations can be manufacturer list or invoice prices depending on the country. Invoice prices can already reflect on-invoice discounts, while many off-invoice rebates are not directly observed.
Why do brand-name drugs show a much larger price gap?
Exclusive sales rights, limited direct competition, insurance and payer bargaining can give originator manufacturers more pricing leverage, especially when close therapeutic alternatives are limited.
Why can generic drugs be much cheaper?
Multiple approved suppliers can compete directly for the same market, and FDA data show that prices generally fall as additional generic competitors enter.
Does pharmaceutical R&D directly determine a drug's market price?
No. Expected future revenue affects R&D incentives, but CBO explains that R&D spending already incurred is a sunk cost when post-approval pricing decisions are made.
Are PBMs responsible for all high U.S. drug prices?
No. PBMs affect rebates, formulary access and pharmacy reimbursement, while manufacturer exclusivity, competition, insurance and payer-specific pricing rules also shape the broader price gap.
How many Medicare drugs have negotiated prices in effect in 2026?
The first negotiation cycle covers 10 selected Part D drugs for initial price applicability year 2026. Their negotiated maximum fair prices took effect January 1, 2026.
What is the Medicare Part D out-of-pocket threshold in 2026?
CMS set the calendar year 2026 annual out-of-pocket threshold at $2,100 under the standard Part D benefit. It is a beneficiary cost-sharing threshold, not a cap on the medicine's total price.
Sources
RAND — International Prescription Drug Price Comparisons: Estimates Using 2022 Data
Primary source for the 278 all-drug, 422 brand-name originator and 67 unbranded generic price indexes; market shares; price definitions; MIDAS methodology; and RAND's 308% rebate-adjusted brand estimate.
HHS ASPE — Comparing Prescription Drugs in the U.S. and Other Countries
HHS summary of RAND research commissioned by HHS/ASPE on international prescription drug prices, availability and the U.S. share of drug spending on newer medicines.
Congressional Budget Office — Alternative Approaches to Reducing Prescription Drug Prices
Primary economic source for retail prescription-drug pricing, exclusive sales rights, insurance effects, payer negotiations, rebates, competition and differences between U.S. and foreign price constraints.
Congressional Budget Office — Research and Development in the Pharmaceutical Industry
Source for the $83 billion 2019 R&D figure, development-cost estimates and the distinction between sunk R&D costs and forward-looking pricing decisions.
FDA — Generic Drug Facts
FDA source for generic competition and the illustrative price patterns associated with one and five generic competitors.
FTC — Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers
FTC staff report covering 51 specialty generic drugs and more than $7.3 billion in dispensing revenue above estimated acquisition costs at affiliated pharmacies during 2017–2022.
CMS — Selected Drugs and Negotiated Prices
Current CMS program page for selected drugs, negotiated maximum fair prices and Medicare Drug Price Negotiation Program cycles.
CMS — Negotiated Prices for Initial Price Applicability Year 2026
Official source for the first 10 negotiated drugs and CMS estimates of approximately $6 billion in 2023-basis net savings, about 22%, and $1.5 billion in projected 2026 beneficiary out-of-pocket savings.
CMS — Final CY 2026 Part D Redesign Program Instructions
Official source for the 2026 Medicare Part D benefit structure and the $2,100 annual out-of-pocket threshold.
https://www.cms.gov/newsroom/fact-sheets/final-cy-2026-part-d-redesign-program-instructions
Evidence snapshot: September 23, 2026. Source years differ because international price studies, market investigations and federal program rules cover different measurement periods. Historical observations retain their original source years.
