GINGRICH: Rethinking What We Know About U.S. Drug Prices

by Newt Gingrich

The conventional wisdom is that Americans pay far more for prescription drugs than patients in other developed countries. This belief has fueled bipartisan calls for heavy-handed measures such as price controls, punitive taxes, and even nationalization of drug manufacturers.

Lawmakers feel pressure from two directions. Patients experience drug prices more directly than other medical bills because of how insurance is structured. At the same time, healthcare costs are the single largest category of spending at the federal and state levels, which puts enormous strain on budgets.

But what if this conventional wisdom is wrong? A new study challenges what we thought we knew about drug prices in America and flips the narrative on its head.

Unleash Prosperity recently released a comprehensive analysis of drug prices in the public programs of the United States, Canada, Germany, the United Kingdom, France, and Japan. Unlike previous studies that focused only on brand-name drugs, this analysis also included generics and accounted for the volume of prescriptions in each country. This distinction is critical for understanding how a drug-pricing system works in practice rather than in theory.

The results are striking. Medicare and Medicaid pay on average 18 percent less per prescription than public programs in the other five countries. The reason is simple. Generic drugs in the United States are between 44 percent and 66 percent cheaper, and they account for 93 percent of all prescriptions. In peer countries, generics account for only 70 percent to 80 percent of prescriptions and cost substantially more.

This means that while foreign countries may pay less for brand-name drugs, the higher cost of generics and the lower share of generic prescriptions drive their overall prices higher than those in the United States. In short, Americans benefit from a model that makes most prescriptions affordable, even if some branded drugs remain costly.

The U.S. system of market-based pricing combined with limited patent exclusivity works. It gives drug developers strong incentives to invest in new treatments while using competition to drive down the cost of older medicines. Patients benefit from lower prices on more than nine out of 10 prescriptions, while manufacturers retain the resources to pursue life-saving innovation.

By contrast, other developed nations suppress brand prices and protect generics from robust competition. The result is a system in which patients pay too much for everyday medicines, and manufacturers face limited returns for developing breakthrough therapies.

None of this means the U.S. model cannot be improved. It does mean that importing European-style price controls would make the system worse. The better path is to pursue reforms that build on what already works.

One promising framework is the “Most Favored Patient” plan developed by Unleash Prosperity. Among its key elements:

• Expand direct-to-consumer purchasing. Patients should benefit directly from the discounts negotiated on their behalf, rather than watching savings flow to insurers and middlemen.

• Reform pharmacy benefit managers. Negotiating power is fine when patients see the benefits, but today PBMs often pass rebates to insurers while forcing the sickest patients to pay more at the pharmacy counter.

• Fix the 340B program. What began as a way to support charity care has morphed into a profit center for hospitals that exploit discounts instead of helping patients.

• Reduce fraud, waste, and abuse. Targeted oversight can ensure taxpayer dollars are used to lower costs and improve care.

Many of these reforms have already been advanced by the Trump administration and leaders in Congress. Together they point to a better way forward.

America’s drug-pricing system is not perfect, but it already delivers lower net prices on patients and taxpayers for prescriptions while sustaining the world’s most innovative pharmaceutical industry. The answer is to strengthen what works, reform what does not, and make sure Americans continue to have access to affordable medicines today and groundbreaking cures in the future.