Now We’re Told High Drug Prices Are Doing Us a Favor

By ALDP Co-founders Michael Glassner and Jason Young

Aug. 20, 2026 – A new argument against Medicare drug price negotiation makes a surprising claim: lowering the price of brand-name medicines today could eventually make prescription drugs more expensive.

University of Chicago economist Tomas Philipson makes the case this way:

Large, profitable drug markets attract more generic and biosimilar competitors.
Medicare negotiation reduces what a brand-name manufacturer earns before those competitors arrive.
That could make some competitors decide the market is no longer worth entering.
With fewer competitors, prices don’t fall as far.

Philipson’s model projects a large effect:

38% fewer generic and biosimilar competitors,
Prices, once competition begins, that are 45% higher than they otherwise would have been, and
Average prices over 35 years that are ultimately 21% higher.

More competitors generally do drive prices down. But that doesn’t mean Americans need to keep paying exceptionally high brand-name prices today to get affordable generics tomorrow. Philipson’s argument deserves careful scrutiny.

Start with the dollars

A 45% price increase sounds enormous. But 45% of what?

Philipson notes that when 10 or more generic manufacturers compete, prices can fall to about 16% of the former brand price.

Take a medicine that costs $200 a month. At 16% of the original price, its generic would cost about $32. A 45% increase takes that price to about $46.

That extra $14 matters, especially across millions of prescriptions. But it is very different from saying a $200 medicine becomes 45% more expensive.

There’s also the timing:

The additional cost Philipson warns of comes later, after competition has already driven the price dramatically lower.
Medicare’s savings come years earlier – while the brand-name drug is expensive, widely used and still protected from generic or biosimilar competition.

Philipson’s model is projecting outcomes 35 years into the future, not reporting results that have already occurred. His conclusion depends on predicting: 1) how many competitors will enter markets years from now, 2) what they will charge, 3) how much difference each additional competitor will make, and 4) how long patients will continue using the same medicines. Reasonable changes to those assumptions could produce very different results.

Americans already start with much higher prices

There is another problem with treating today’s brand-name drug prices as something we need to preserve: Americans already pay far more for brand-name medicines than people in other wealthy countries. As figures as politically different as President Trump and Bernie Sanders have observed, Americans often pay several times what patients abroad pay for the same medicines – drugs made by the same companies and sometimes in the same factories.

Medicare negotiation has narrowed that gap for one slice of the population. It hasn’t closed it for that slice, nor has it closed it for every American patient.

A recent peer-reviewed study found that the prices Medicare negotiated in its most recent round were, at the median, 108% higher than the average international price, after adjusting for differences in purchasing power.

In plain English: even after negotiation, Medicare was still paying considerably more than other wealthy countries.

International price comparisons aren’t perfect. But the basic question is hard to avoid: If Medicare’s negotiated prices are too low to sustain future competition, how do other wealthy countries maintain access while paying less?

There is a larger question for drug manufacturers too. If more global revenue is needed to sustain innovation and competition, why should American patients and taxpayers continue to provide a disproportionate share of it?

Competition already has problems

Generic and biosimilar competition is enormously important. But the real market doesn’t work as neatly as the theory suggests.

Brand-name manufacturers have used patent thickets, litigation and pay-for-delay agreements to postpone competition. Federal regulators have spent years trying to address these practices.

Biosimilars – roughly speaking, the generic counterparts of biological medicines – face other obstacles. Many biologic medicines are expected to lose exclusivity over the coming decade, but about 90% have no biosimilar currently in development.

And when competitors do arrive, they don’t always gain market share quickly. Humira faced numerous competitors, for example, but rebate arrangements and decisions about which drugs insurance plans would cover and prefer initially helped the brand retain substantial market share.

These problems existed before Medicare negotiated a single drug price.

If we want more competition, we should tackle these other impediments to competition.

Today’s savings are real

Meanwhile, Medicare’s savings aren’t projections decades into the future. They’re real.

And these prices were negotiated, not simply dictated. Across the first two rounds, CMS ultimately accepted a manufacturer’s counteroffer in 11 of 25 negotiations.

CMS estimates that the first 10 negotiated prices would have reduced Medicare’s net spending on those drugs by about $6 billion, or 22%, in the year it used for comparison. The next 15 negotiated prices would have produced about $8.5 billion in savings.

Those savings occur while these medicines are expensive and heavily used. They matter to taxpayers, Medicare, and the seniors and people with disabilities who rely on the program.

A patient struggling to afford medicine today receives little comfort from being told that maintaining a higher brand price might produce another generic competitor decades from now.

And there is another important fact: Medicare negotiation does not replace generic competition. When genuine generic or biosimilar competition arrives, a drug can leave the negotiation program. That has already happened with drugs from Medicare’s first round.

We don’t have to choose

Philipson raises a question worth testing as Medicare negotiation continues: Does it discourage generic or biosimilar competition in some markets?

If the evidence eventually says yes, policymakers should address that problem directly.

They can make it harder to use patents simply to delay competitors. They can reduce unnecessary barriers to developing generics and biosimilars. They can address a whole range of practices that keep lower-priced competitors from reaching patients. And where a market genuinely isn’t large enough to attract competition, they can consider targeted incentives.

What we shouldn’t assume is that the solution is preserving higher brand-name drug prices for everyone today.

Americans already pay some of the highest prices in the world for prescription medicines. Asking them to keep paying more now in hopes of getting somewhat cheaper generics years from now is not the only choice available.

We can lower unreasonable brand-name prices today and build a stronger competitive market for tomorrow.

Patients deserve both.