For years, one of the most common refrains in the U.S. drug pricing debate has been simple: Americans subsidize the world’s healthcare. The argument goes that if other wealthy nations—particularly in Europe—paid more for their medications, U.S. prices would naturally fall. It’s an appealing narrative, but the reality is far more complicated.
The truth is that higher drug prices in Europe may not necessarily lead to lower prices in the United States. In fact, the pharmaceutical industry itself has actively worked against proposals that would tie U.S. prices to international rates, revealing a fundamental tension in how we think about global drug costs.
The Subsidy Myth
The pharmaceutical industry has long argued that high U.S. prices fund the research and development that benefits patients worldwide. According to this logic, European countries with their government-negotiated prices are essentially free-riding on American innovation. If those countries paid their “fair share,” the burden on American patients would ease.
But this framing obscures a crucial point: pharmaceutical companies have consistently opposed actual mechanisms that would link U.S. and international prices. When policymakers have proposed using international reference pricing—where U.S. Medicare payments would be tied to what other developed nations pay—the industry has fought back vigorously.
Why the Industry Resists International Pricing
This opposition reveals what’s really at stake. Pharmaceutical companies aren’t actually seeking higher prices abroad to lower them at home. Instead, they’re protecting a system where the U.S. market generates outsized profits that fund not just R&D, but also marketing, executive compensation, and shareholder returns.
The U.S. represents roughly 40% of the global pharmaceutical market despite having less than 5% of the world’s population. This concentration of revenue means that American patients aren’t just contributing to drug development—they’re disproportionately funding the entire business model of global pharmaceutical companies.
If European prices rose but U.S. prices remained high, companies would simply enjoy larger profit margins. There’s no market mechanism or regulatory requirement that would force those additional revenues to translate into lower U.S. costs.
The Complexity of Drug Pricing
The drug pricing landscape is shaped by multiple interconnected factors that make simple solutions elusive:
Market dynamics differ fundamentally. European countries typically negotiate prices nationally or through collective purchasing agreements, using their leverage as single or dominant payers. The U.S. system, fragmented among private insurers, pharmacy benefit managers, and government programs, lacks this unified bargaining power.
Rebates and discounts create opacity. List prices in the U.S. often bear little relationship to what insurers or government programs actually pay after rebates and discounts. This complexity makes true price comparisons difficult and allows different stakeholders to profit from the system’s lack of transparency.
Patent protections and market exclusivity matter. Pharmaceutical companies maximize revenue during the period when they face no generic competition. Pricing strategies during this window are designed to capture as much value as possible before patents expire, regardless of what happens in other markets.
Political will varies dramatically. European governments have proven willing to walk away from negotiations or exclude drugs from their formularies if prices are too high. U.S. policymakers have historically been more reluctant to take such stances, partly due to industry lobbying and partly due to genuine concerns about patient access.
What Would Actually Lower U.S. Prices?
If international price disparities won’t solve the problem on their own, what would? Several approaches have shown promise or theoretical validity:
Direct government negotiation for Medicare, recently authorized under the Inflation Reduction Act, allows the largest single U.S. payer to leverage its purchasing power. Early results suggest this can achieve meaningful savings on select high-cost drugs.
True price transparency that reveals what different payers actually spend could introduce competitive pressure and help smaller payers negotiate better deals.
Addressing the perverse incentives in the pharmacy benefit manager system, where rebates can sometimes encourage higher list prices, could reduce costs throughout the supply chain.
Reforming patent and exclusivity rules to reduce evergreening—where minor modifications extend market exclusivity—would allow generic competition to begin sooner.
The Path Forward
The debate over international drug pricing highlights a broader challenge in American healthcare policy: we often seek market-based solutions to problems that exist because our markets function differently than we assume.
Pharmaceutical companies operate rationally within the system we’ve created. They charge what the market will bear, invest heavily in lobbying to protect favorable policies, and maximize shareholder value. Expecting them to voluntarily lower U.S. prices if European prices rise ignores basic economic incentives.
Real change will require confronting uncomfortable truths about how much leverage we’re willing to give government negotiators, whether we’re prepared to accept some drugs not being available if prices are too high, and how we balance innovation incentives against affordability.
The complexity of drug pricing isn’t an excuse for inaction—it’s a call for more sophisticated policy solutions than simply pointing to price differences across borders. Until we address the structural factors that make the U.S. an outlier, American patients will continue paying premium prices regardless of what happens in Europe.
