America accounts for 70% of OECD-wide profits on patented medicines, even though it represents just over a third of OECD countries' combined GDP. America's list prices for branded drugs are, on average, more than four times those in other rich countries. Brand-name drugs often launch years earlier in America, cost three times more than the OECD average and enjoy broader insurance coverage.
Between 2014 and 2022 one in five medicines approved in America never won approval in Europe, and nearly half were not approved by Japan. Of those cleared in all three places, more than two-thirds were first approved in America—nearly six months before Europe, on average, and almost three years before Japan. When other countries pay less, their patients often get worse access to new drugs.
On average it takes a decade and over $2bn to bring a medicine to market. Nine in ten clinical trials fail, creating a classic free-rider problem: countries want new medicines but want others to pay the higher prices that produce the needed return on investment in R&D.
Italy claws back payments to manufacturers if spending on particular medicines exceeds certain thresholds and restricts access to costly drugs. Britain values a patient's additional year of health at just £20,000-30,000 ($27,000-40,000), far below the $100,000-150,000 used in American cost-effectiveness studies; only 13% of new treatments are covered without restrictions. Germany links new drug prices to older treatments. France uses rebates, clawbacks and taxes to achieve some of the lowest drug prices in Europe. EU countries delay pricing and reimbursement decisions by an average of 700 days, far beyond the 180-day EU legal limit.
America spends nearly 0.8% of per-head GDP on innovative medicines. By contrast, Italy and Spain spend 0.5%, Germany 0.4% and France 0.3%. Tomas Philipson, a former acting chairman of the Council of Economic Advisers, has proposed NATO-style minimum-spending targets to close this gap.
It is already more expensive to fill a typical prescription in Europe than it is in America, because America fills a greater share of prescriptions with generics that on average cost half as much as they do in Europe.
Americans spend around $5trn a year on health care, 40% more than in 2010 after adjusting for inflation. That comes to $13,400 per head—$6,000 more on average than in other rich countries, without being any healthier for it. About $490bn a year goes on prescription medicines; roughly 90% of that is spent on branded drugs, yet branded drugs make up only 7% of prescriptions.
Analysis suggests America's health-care industry rakes in excess profits (above a 10% return on capital) of $120bn a year. American and foreign drugmakers account for about $44bn of that; when loss-making biotech firms are included, drug developers' overall excess profits amount to $38bn. The bulk of the rents is captured by providers of health-care services such as hospitals, and by the system's true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity. Three pharmacy-benefit managers handled nearly 80% of prescription claims in 2024; some of them are being investigated for uncompetitive behaviour.
In 2025 Donald Trump demanded that drugmakers charge no more in America than they do in comparably well-off countries—a rule he calls "most favoured nation" (MFN) pricing. On October 1st 2025 he unveiled "TrumpRx", a government website offering patients steeply discounted medicines; Pfizer was the first to sign up. The same day, imported branded drugs began facing a 100% tariff unless their makers are building factories in America. Generics, which make up 90% of prescriptions, are exempt.
Joe Biden's Inflation Reduction Act authorised Medicare to negotiate directly with manufacturers, but only ten drugs will be covered in 2026 and 20 by 2029. Medicaid is tying payments to outcomes in costly gene therapies for conditions such as sickle-cell disease, a model for value-based pricing. Jefferies, an investment bank, estimates that an MFN-pricing rule combined with tariffs could cut companies' earnings by about a sixth.
You never learn anything by doing it right.