Lowering Prescription Drug Prices

Limiting Prescription Drug Prices

Policies that would cap the price of drugs include setting maximum prices directly, expanding Medicare negotiations over drug prices, and mandating inflation rebates from drug manufacturers directly to consumers.

If the federal government were to cap prescription drug prices, it would most likely take the form of matching prices charged in other industrialized nations, such as those in Europe. Generally, a large buyer of drugs can negotiate a lower per-unit price, so European countries with nationalized (or variants thereof) healthcare often pay lower prices because their governments negotiate prices for the entire country. Simply pegging U.S. drug prices to those charged in other countries would exploit their bargaining power and lower costs for consumers.

A second alternative involves expanding the U.S. government's bargaining power to negotiate Medicare drug prices that would then also apply to the commercial market. Medicare already negotiates drug prices for the millions of Americans using it. This alternative would increase the number of drugs Medicare will negotiate prices for (currently just a few drugs to potentially dozens), raise the depth of discounts Medicare can pursue, and expand negotiation authority in both Medicare Part D (outpatient drugs) and Part B (physician-administered drugs). This approach somewhat mimics the bargaining leverage advantage of setting a price cap directly.

A third proposal being considered would require drug manufacturers to issue inflation-adjusted rebates directly to consumers. This alternative would be the least direct of the price-capping alternatives, as it would require consumers to bear the costs of the drugs up front and receive a rebate later to offset rising prices.

Regulating the Drug Pricing Industry

A variety of other alternatives exist that fall under the banner of increased regulation of the drug price-setting industry. Some Americans already buy their prescription drugs from other countries like Canada or Mexico, where drug prices are typically lower. One alternative being debated in Washington would simply allow pharmacies to import drugs from countries with lower prices and sell the drugs directly to Americans.

Another proposal would be to eliminate direct-to-consumer advertising of drugs. Critics of drug commercials argue that patients are seeking drugs they don’t need because of exposure to advertising and that, generally, the costs of advertising itself drive up the cost of drugs domestically. Banning advertisements would eliminate these issues, though it could also face a First Amendment challenge, since companies are generally regarded as having a right to advertise.

Name-brand drugs and their generic or biosimilar alternatives are chemically identical. However, name-brand drugs are generally significantly more expensive. Some members of Congress are calling for swifter approval of generic or biosimilar drugs to reduce prices.

There are also other wider proposals, among them include capping out-of-pocket costs for prescription drugs to $2,000 per year for individuals and $4,000 per year for families. This approach would extend protections similar to Medicare’s current cap to the broader commercial market.

What’s the likelihood these proposals would have a broad impact?

In 2024, the nonpartisan Congressional Budget Office (CBO) analyzed the price-matching and bargaining proposals. For brand-name drugs, the CBO study concluded that implementation of price-matching and centralized bargaining would reduce overall consumer spend on prescription drugs by about 5%. Why only 5%? In their view, both proposals would affect only a small fraction of the prescription drug market. As we discuss in an earlier brief, over 90% of prescriptions written in America are for ‘generic’ drugs, a drug whose patent protection has expired. On average, generic drugs are already cheaper in the U.S. compared to Europe and elsewhere.

Other sources have varying views. According to the Centers for Medicare & Medicaid Services, Medicare negotiations already underway in 2026 for a select set of brand-name drugs are projected to reduce prices for those specific drugs by approximately 22%, with negotiated discounts ranging from 38% to 79% on specific drugs. And according to The Common Wealth Fund, prior budget office estimates on broad negotiation proposals include scenarios where major drug brands would be reduced by 57% to 75% compared to current prices.

Finally, organizations like the Association For Accessible Medicines remind us that while many proposals may push prices down, the pharmaceutical industry may respond in ways that affect net outcomes. Some experts even warn that government price negotiation could discourage generic and biosimilar development or shift the industry’s overall strategy, which might affect long-term competition.

The Takeaway

A variety of proposals are being discussed in Washington to reduce prescription drug prices, including capping prices and reforming regulatory oversight of the industry.

While the impact of these proposals depends on how they are implemented, the savings could potentially be low compared to the total costs of prescription drugs, depending on how broadly such proposals are implemented.

Government price negotiation and other proposals could discourage generic and biosimilar development, shift the pharmaceutical industry’s overall strategy, and could limit long-term competition in bringing new drugs to market.