Research Guide · Prescription Drugs
Why Prescription Drugs Cost What They Do
The VA and Medicare buy the same drugs from the same manufacturers — and pay strikingly different prices. This guide answers the most common questions about U.S. drug pricing, synthesized from the reporting in Before the Counter.
Why does the same drug cost different prices to different buyers?
Two American federal programs — the VA and Medicare — can buy the identical medicine, from the identical manufacturer, at strikingly different prices. A 2020 GAO audit of 399 matched drugs found the VA paid roughly 54% less than Medicare. The gap isn't a mystery or an accident: it traces to a specific difference in what federal law allows each program to do at the negotiating table.
What is a PBM, and why does almost every prescription go through one?
A prescription passes through five parties before it reaches a patient: the manufacturer, a wholesaler, the pharmacy, the insurer, and — standing in the middle of nearly every transaction — a pharmacy benefit manager, or PBM. Most Americans have never heard of the company negotiating their drug's price.
Three PBMs — CVS Caremark, Express Scripts, and OptumRx — handle roughly 8 in 10 prescriptions filled in the United States, according to a 2024 FTC staff report. Each sits inside the same corporate family as a major insurer: CVS Caremark with Aetna, Express Scripts with Cigna, OptumRx with UnitedHealthcare. The company negotiating the price, the company paying the claim, and the company dispensing the drug are, in each case, branches of one corporate tree.
How does the drug rebate system actually work — and who benefits?
In most of the economy, a rebate returns money to the buyer. In prescription drugs, it works differently. A manufacturer sets a list price, then negotiates a rebate back to the PBM in exchange for favorable formulary placement. When the list price rises the following year, the rebate rises with it — and because many insurance plans calculate a patient's deductible and coinsurance against the undiscounted list price, the patient's share rises too, even though the patient never sees the rebate.
“A system that rewards a higher starting price is not offering a real discount, no matter what it is called.”— Before the Counter
State audits have found this kind of spread pricing diverting tens of millions of dollars a year from Medicaid programs; most states have since banned the practice within Medicaid, though federal action has been more limited.
Why couldn't Medicare negotiate drug prices until recently?
The answer has a date: 2003, when Congress created Medicare Part D through the Medicare Modernization Act. Buried in that law is a provision known as "noninterference," which bars the Secretary of Health and Human Services from negotiating drug prices with manufacturers on Medicare's behalf. For most of what Medicare buys, that instruction still holds.
Meanwhile, the VA operates under a different statute — Section 8126 of Title 38 — which grants it exactly the negotiating tools Medicare was denied. Two federal programs, buying the same medicines from the same companies, operating under opposite instructions, arrive at opposite prices.
The Inflation Reduction Act of 2022 cracked the noninterference clause for the first time, letting Medicare negotiate a limited, growing list of high-cost drugs. The first ten negotiated prices took effect January 1, 2026, at discounts ranging from roughly 38% to nearly 80% off prior list prices, with fifteen more scheduled for 2027, including Ozempic. The nonpartisan CBO projected roughly $102 billion in Medicare savings over ten years — a large number, and still a small fraction of the gap between what Medicare and the VA pay across the full drug list.
A separate approach, Most Favored Nation (MFN) pricing, tried to import peer-country prices directly rather than build negotiating capacity at home. President Trump's first-term MFN order (September 2020) was blocked in court within months and formally withdrawn in 2021; a revised version was reissued in 2025 and remains in litigation. The idea's flaw, on this evidence: a price borrowed from another country's review process doesn't hold up once separated from the review body, formulary, and willingness to refuse that produced it.
What is TrumpRx, and does it fix the problem?
Launched in late 2025, TrumpRx is a government-run website where participating drug companies voluntarily post a cash discount price for select brand-name drugs. It is not a negotiation, a price control, or a covered-drug list — it's a coupon program that sits alongside the existing insurance system.
Ozempic is the clearest illustration. At full U.S. list price, one month costs $997. At the TrumpRx cash price, it costs $275. In the United Kingdom, the NHS pays about $92 for the same month of the same drug from the same company. Over a full year, a patient paying U.S. list price pays roughly 11 times what a UK patient pays; a patient using TrumpRx still pays roughly 3 times as much.
Averaged across a basket of TrumpRx drugs, the discount narrows the U.S.-to-UK gap by about two-thirds — but U.S. prices on TrumpRx remain roughly twice what the same drugs cost in the UK. And because participation is voluntary, any drug company can leave the program on thirty days' notice; a coupon is not written into law the way the IRA's negotiating authority or the UK's NHS pricing are.
“TrumpRx negotiates perception. Real reform negotiates price.”— Rigged at the Counter
How does the VA actually pay less?
Not through a secret price, inferior medicine, or refusing new treatments. The VA buys as a single national purchaser rather than letting more than a hundred medical centers shop independently, and it operates under a statutory price floor — the lower of the Federal Supply Schedule price or 76% of a drug's average non-federal price, a guaranteed discount of at least 24% built directly into law.
On top of procurement, the VA practices active stewardship. A prospective-review pilot at the VA Palo Alto Health Care System, examining roughly 1,800 courses of expensive IV antibiotics, cut costs by about a third with no increase in mortality — a model that, since 2019, federal rules require every Medicare- and Medicaid-participating hospital to run.
What the discipline adds up to
| Comparison | Finding |
|---|---|
| VA vs. Medicare pricing, 399 matched drugs (GAO) | ~54% less |
| VA pharmacy cost per patient, 1999 vs. 2014 | $599 → $752 (flat, vs. national spending climb) |
| Medicare Part D spending vs. modeled VA pricing, one drug set (JAMA Internal Medicine) | $32.5B vs. $18.0B — ~$14.4B gap |
How does the U.S. compare to other countries?
London, Berlin, Paris, Toronto, and Tokyo differ sharply in politics and culture, yet each arrives at far lower prices for the same medicines. Before agreeing to pay for a new drug, each asks a question American purchasing usually skips: does this drug provide enough added benefit to justify its price? The UK's NICE, Germany's IQWiG/G-BA, France's HAS, Canada's joint provincial negotiation, and Japan's post-launch repricing are different institutions arriving at similar results.
A 2024 RAND analysis found U.S. brand-name drug prices running roughly 3.2 times those of comparison countries, even after accounting for rebates. The honest counterpoint: a buyer willing to say no will sometimes say no, and American patients often do get the newest medicines first — a real trade-off, not an illusion.
The gap shows up starkly at the level of a single prescription. A biologic drug running roughly $7,000 a month in a U.S. pharmacy costs around $1,400 for the identical product in the United Kingdom. A life-saving HIV medication costs four times as much here as in the UK. An inhaler a U.S. pharmacy charges $425 for costs the NHS about $40. Same chemical, same manufacturer — the difference is the law the buyer operates under.
Does lower drug pricing hurt future innovation?
This is the industry's strongest argument, and it deserves a real hearing. Much of the foundational science behind new drugs is publicly funded: one widely cited analysis found NIH-funded research contributed to the science behind every one of 210 new drugs approved between 2010 and 2016, backed by more than $100 billion in NIH funding.
When the nonpartisan Congressional Budget Office modeled Medicare's new negotiation authority, it projected a modest effect on future drug development — on the order of roughly a dozen fewer drugs out of about 1,300 over thirty years, close to one percent — while industry-aligned analyses project larger losses.
What would actually fix prescription drug pricing?
The evidence points to six levers, none of them requiring an entirely new system — only connecting the disciplined one already run for veterans to the one run for everyone else:
- Letting Medicare negotiate broadly, by amending the 2003 noninterference clause.
- Pairing independent value review with a national formulary.
- A durable price ceiling tied to peer-country prices.
- Banning spread pricing and delinking PBM pay from list price.
- Passing rebates through to patients at the counter.
- Restoring competition through patent reform and public-interest generic manufacturing — exemplified by the nonprofit Civica Rx, now producing more than seventy essential generic drugs.
Pharmaceutical and health-products lobbying totaled roughly $390 million in 2024, more than any other American industry in nearly every quarter since 2010 — a permanent, organized force behind the status quo. Even so, the country has tried repeatedly, under both parties, from the 2020 Most Favored Nation order to the 2022 Inflation Reduction Act to 2025's TrumpRx.
This guide summarizes the evidence. The full investigation — the sourcing, the reporting, the complete argument — is in the book.
Every figure on this page is drawn from the sourced reporting in Before the Counter and Rigged at the Counter. See the books for full citations.