This post was updated Nov. 7 at 8:47 p.m.

Lowering the cost of pharmaceutical drugs may alleviate financial burdens for nearly 60% of adults in the United States who took some form of prescription medication last year, but such a proposal may come at a cost. 

In August 2023, President Biden announced federal health insurance program Medicare will negotiate lower prices for 10 drugs commonly used by older patients that address conditions ranging from diabetes to heart disease. As part of the Inflation Reduction Act, Medicare will negotiate with pharmaceutical companies that produce these drugs to lower their prices by 2026. While a third of the companies initially sued the government over this act, they all ultimately signed the agreement to undergo price negotiations as they were left with the costly alternatives of paying fines or being forced to pull out of the public health care market, where a majority of their revenue is made, according to NPR.

John Lu, an adjunct associate professor of health policy and management and biopharmaceutical industry veteran, said the resistance from pharmaceutical companies is partly a result of the complexity of the U.S. health care system.

“They (other countries) have more of a uniform methodology, so you can compare across different drugs to determine price,” Lu said. “In the U.S., there’s not that, partially because we have so many different types of payers – government payers, private payers. The level of sophistication is very different.”

Thousands of private insurance entities and various federal programs such as Medicare finance the U.S. health care system, according to the National Association of Insurance Commissioners. Those payers sit as the intermediary between entities such as drug companies and patients in order to finance and distribute health care.

Burt Cowgill, an associate professor of health policy and management, said the U.S. multi-payer system is an anomaly.

“Most other countries have some form of what I’ll call universal health care, (or) single payer health care, run by the national government,” Cowgill said. “People pay very little out of pocket to access care because there’s one payer, there’s one single entity. We don’t have that in the United States.”

In most countries outside the U.S., the national government acts as the single payer of health care, allowing for uniform methodologies in assessing and approving drugs, as well as a “cut and dry” price threshold determined solely by the government, Lu said. For example, countries such as the United Kingdom, Germany and Canada have set price ceilings that prevent pharmaceutical companies from listing drugs on the market above a specific negotiated price, according to the American Medical Association Journal of Ethics.

The lack of transparency in pricing and regulating drugs in the U.S. has been a long-standing debate largely fueled by the U.S.’ unique political and economic values. 

“It’s an American reluctance to follow a certain uniform standard,” Lu said. “We want the free market to determine what is acceptable. We want a free market to determine what is considered good value for money.”

Lu added that the desire for a free market contributes to the persistence of a steep pricing system in the U.S. While Biden’s efforts to challenge the current system by enacting price negotiations will lessen the power of the free market to lower prices, those efforts have also raised concerns from the pharmaceutical industry.

Richard Balagtas, a former U.S. Fulbright Scholar in public health and MBA candidate at the Anderson School of Management, said the extensive research and development process of new drugs requires three phases of trials involving expensive resources and labor, as well as years of dedication.

“The pharma company is making money from their drug that was produced, but they’re also spending a considerable amount of money and also losing money in trials that fail,” Balagtas said.

Balagtas said as drugs become cheaper for patients through implementation of Biden’s policy, revenue for companies may also decrease. The financial investment in research and development may outweigh the revenue made from selling the drug, ultimately disincentivizing companies from finding solutions for medical conditions and diseases. 

“From the pharmaceutical company perspective, it’s almost like, ‘What’s the point of continuing to innovate on our existing therapies? Why take the risk?’” Balagtas said.

Currently, the U.S. ranks first in science and technology innovation in health care globally, though it falls behind on the health care quality, choice and fiscal sustainability, according to the Peter G. Peterson Foundation. Additionally, The Commonwealth Fund found that the U.S. produced less favorable outcomes relative to the money spent on health care.

“We spend about twice as much per capita on health care as other countries do,” Cowgill said. “Yet our outcomes arguably are no better and if not some cases worse.”

Facing high costs and poor results, Cowgill said younger audiences should focus on holistic health care measures targeting better nutrition, physical activity, mental health and pollution to avoid paying such hefty costs on the backend, as well as studying health care policy to make informed votes and advocate for change. 

“It takes 20 to 30 years (for) our country to develop momentum with policy,” Cowgill said. “I hope this generation can take on this challenge and get us to a better place, so that when I’m on Medicare, we’re in a good place.”