Prescription Medication Expenditures and Policy Challenges in the U.S.: A Narrative Review of Economic and Legislative Solutions

Introduction

Medication expenditures have the potential to affect patients through costs (e.g., out-of-pocket burdens) and consequences (e.g., nonadherence, reduced quality of life), and the excessive cost of expenditures in the US compared to other countries requires fundamental reform. Global spending on medications is projected to exceed $1.9 trillion (amounts in this article are in US dollars unless otherwise stated) in 2027, more than double the amount spent in 2010.¹ The projected share of that spending by the US for 2026 is the highest of all countries (between $685 and $715 billion) and is three-fold greater than that of the country with the second highest level of spending, China.² The US prices for prescription medications are higher than other comparison countries for both brand (3.22 times as high) and generic (2.78 times as high) medications as indicated by a report published in 2022 by the Office of the Assistant Secretary for Planning and Evaluation of the U.S. Department of Health and Human Services (USDHHS) contracted with Rand Health Care.³ Importantly, retail medication expenditures, while continuing to grow on a yearly basis, still account for a relatively small portion of the $4.5 trillion in total US healthcare expenditures of which 90% is spent treating people with chronic and mental health conditions.^4,5 However, prices for prescription medications impact pharmacists and patients on a daily basis and constitute an important area for healthcare reform.

Blockbuster medications, typically defined by sales exceeding $1 billion (US), are one major factor affecting expenditures for prescription medications, certainly in the management of common chronic diseases but increasingly also in specialty areas like immunology and oncology. The blockbuster phenomenon is, however, best analyzed from the perspective of chronic diseases in the general population. The hope of discovering marketable blockbuster medications has served as the historical basis for much of the research and development (R & D) by pharmaceutical companies, although this is a high-risk, high-reward approach to drug discovery.⁶ The approval and uptake in the rate of demand for these blockbusters can have a substantial impact on healthcare spending by both governmental and non-governmental healthcare providers and payers. The rapid rise in sales of the glucagon-like peptide 1 (GLP-1) receptor agonists and GLP-1/ glucose-dependent insulinotropic polypeptide (GIP) dual agonist medications prescribed for weight loss and type 2 diabetes serves to illustrate this point. Of the top ten medications with the biggest sales/projected sales, Ozempic® with sales of $8.6 billion (8th rank), $13.9 billion (3rd rank) and $16.1 billion (2nd rank) in 2022, 2023, and 2024, respectively, was the only GLP-1 or dual agonist listed (Table 1).^7,8 One year later projected sales for 2025 included four GLP-1 or dual agonist medications holding the 2nd, 3rd, 8th, and 10th rankings for total worldwide sales of $66.71 billion.⁹ This increase in ranking and sales for GLP-1 and dual agonist medications seems likely to continue given the 147% increase in the 2023 sales of two agents being marketed by Novo Nordisk specifically for patients with obesity or who are overweight with at least one weight-related comorbid condition.¹⁰ Importantly, off-label use can exceed 50% of prescriptions.¹¹

Newly released blockbuster agents such as the GLP-1 or dual agonists present challenges with respect to evaluating their potential benefits relative to adverse effects and cost, but they are only one of the factors responsible for the rise in expenditures for prescription medications. Additionally, it is important to note that this discussion refers to the rise in overall prescription medication expenditures in conjunction with an aging population in the US and recognizing the mix of old and new marketed drugs with differing impacts on price relative to consumer inflation. The purpose of this paper is to discuss factors responsible for prescription medication expenditures and the challenges in their control with a focus on the US healthcare system.

National Approaches to Controlling Prescription Medication Prices

The US has no overarching national pricing strategy for prescription medications compared to other countries with similar income levels, which has implications for price control. This is illustrated by an evaluation conducted by the US Government Accountability Office (GAO) that investigated the prices for 20 brand-name prescription medications in the US, Australia, Canada, and France.¹² The GAO evaluation found that US net prices at both manufacture and retail levels for selected drugs were on average more than two to four times higher than the comparison countries. The report by the GAO provided other information concerning each country’s healthcare system, spending on prescription medications, and R & D expenditures to contextualize these differences. Table 2 provides an overview of this information. The GAO report discussed the challenges in obtaining medication price information in the US due to its decentralized system with multiple prices among different payers and, in common with other countries, a lack of transparency in some aspects of pricing. In the US and Canada that have multiple payers, consumers’ out-of-pocket costs were more variable than those of Australia and France that have nationally-regulated universal coverage. In the US, medications list prices are publicly available, but actual net prices are difficult to obtain given the involvement of pharmacy benefit managers (PBMs) and different forms of confidential rebates.¹³ Perhaps the closest estimate of net prices, though limited to drugs covered under Medicare Part B, is the quarterly Average Sales Price (ASP) published by the Centers for Medicare and Medicaid Services. Mandatory reporting by drug manufacturers of revenues for a given drug that considers rebates, discounts, payment incentives, and any other reductions granted forms the basis of the ASP calculation.

Cost of Innovation

One of the main arguments for the excessive cost of prescription medications in the US relates to the expense associated with R & D that leads to innovative agents that reduce morbidity and in some cases mortality. However, much of R &D has public funding while later profits are private. A study initiated by the Office of the Assistant Secretary for Planning and Evaluation of the USDHHS performed an economic evaluation to estimate the cost of drug development by therapeutic class and trends in pharmaceutical R & D intensity over time.¹⁴ An analytical model of drug development was constructed for the period from 2000 to 2018 to estimate the cost of bringing a drug to market. The estimated mean cost in 2018 dollars of developing a new drug was $172.7 million, which increased to $515.8 million including cost of failures, and to $879.3 million when including costs of failures and capital with wide variation by medication class. The ratio of R & D spending to total sales of large pharmaceutical companies was relatively unchanged while revenues increased. The investigators argued for greater cost transparency to better understand policy impacts of R & D.

There is debate as to whether pharmaceutical innovation reduces healthcare costs. Besides challenges related to price transparency, other factors complicating such assessments include the possibility of more than one medication to treat a disease and the long timeframe usually needed to consider all associated costs including those related to potential changes in disease burden. One recently published study evaluated the growth in the number of medications approved to treat diseases and the subsequent growth in the mean amount spent per episode of care.¹⁵ The mean episode cost was not related to the number of drugs in the first few years after approval when utilization is still usually low but was inversely related to the number of medications approved over a longer period. There was a reduction in the number of hospital days by 10.5% when evaluating medication approvals during 1984-1997, which led to estimated hospital cost reductions exceeding medication expenditures. There are several assumptions involved in such modeling analyses including recognition of the importance of considering time limit with economic evaluations. Innovation cost concerns are subject to aggravation by issues related to market competition.

Increasing Competition

There is a failure of appropriate competition in healthcare in the US due to factors such as consolidation of care, lack of patient information necessary to make informed decisions, and difficulties in predicting illness and healthcare needs. An insurance system that often discourages patients from seeking lower cost quality care and raises equity concerns compounds this competition concern.¹⁶ Market competition by insurers may be subject to disruption by a problem referred to as “churn,” and by vertical integration of healthcare. Churn occurs when people change or discontinue their coverage by moving on or off a marketplace or governmental insurance program.¹⁷ High prescription medication cost is one of the factors that may lead to churn. Churn has potential negative impacts for the US healthcare system by increasing costs of care and for the affected individual (e.g., medication adherence issues due to cost concerns). Vertical integration occurs when entities such as PBMs, insurers, and specialty pharmacies become part of the same corporate entities, which can hinder competition leading to increasing costs for prescription medications.

The Health and Public Policy Committee of the American College of Physicians has published a position paper that has four recommendations to improve competition in the US.¹⁸ The first recommendation relates to legislative reforms to the Orphan Drug Act that realigns incentives to increase innovation in the development of medications for rare disease. The second recommendation is to reduce the period of data and market exclusivity for biologic drugs from 12 years to 7 years; additionally, this recommendation calls for the removal of barriers to market entry by biosimilars and other follow-on biologics such as patent modifications and related litigation. The third recommendation would empower federal agencies to stop pay-for-delay arrangements that limit patient access to lower-cost medications. The fourth recommendation is to eliminate tax deductions for direct-to-consumer product advertising. These recommendations seem reasonable and doable within the confines of the current US healthcare system, but others would argue for broader system-wide changes such as increased ability of the federal government to negotiate medication prices.

Changes at the US Federal Level to Lower Medication Costs

There are potential changes at the federal governmental level that could increase pharmaceutical innovation or lower medication costs but stop short of proposals to provide some form of universal healthcare with prescription drug coverage. Examples include expanding funding by the National Institutes of Health for early-stage R & D, developing innovation funding to finance late-stage pharmaceutical development efforts, and allowing the Department of Health and Human Services (HHS) secretary to negotiate medication prices based on value.¹⁹ While negotiating based on value has yet to be implemented, the Inflation Reduction Act of 2022 allowed the Centers for Medicare & Medicaid Services (CMS) to negotiate medication prices of high-cost medications covered under Medicare Part D, initially for 10 medications for initial price applicability in 2026 but increasing in number in subsequent years.²⁰ Medicaid and commercial plans are not included. Additionally, a number of high-cost medications are not on the list. While the list of drugs selected for price negotiations to begin in 2027 includes the GLP-1 agent semaglutide, the listing does not include other high-cost GLP-1 or dual agonist medications discussed earlier. Currently, Medicare allows coverage through Part D plans for selected GLP-1 medications approved for type 2 diabetes and cardiovascular disease, and obstructive sleep apnea.²¹ The market for these agents has been estimated to grow to $100 billion by 2030.²² Inclusion of these agents in the recommendations of clinical practice guidelines would likely increase as well.

Types of Economic Analyses

Pharmacoeconomic analyses attempt to evaluate the cost and consequences of medications as they would occur in actual practice (i.e., real-life) settings and not under the controlled conditions necessary for maintaining study validity that usually limits generalizability. A brief, basic overview of the types of economic analyses is useful prior to discussing how such analyses have potential usefulness both for research and clinical decision making.²³

There are four general types of pharmacoeconomic analyses (Table 3): cost minimization, cost benefit, cost consequence, and cost effectiveness with one specific form referred to as cost utility. The simplicity of cost minimization analysis makes it appealing for formulary decision making when the assumptions of the analysis are appropriate. Cost benefit analysis is less useful for medication comparisons given the challenge of monetizing the benefit (e.g., what is the cost savings from preventing a death). Cost consequence analysis, while theoretically appealing for medication comparisons, is less commonly conducted and reported in published literature due to issues with interpretation (e.g., subjectivity regarding costs and outcomes selection).²⁴ Cost effectiveness analysis is the most common form of economic evaluation requested of pharmaceutical companies by countries that consider medication costs and outcomes as part of the approval process. This includes the US, albeit with the stipulation in the Inflation Reduction Act of 2022 that survival outcome metrics [life years (LY) and quality-adjusted life years (QALY)] routinely used in other countries are not part of the decision-making process. Relatedly, although LY and QALY utility measurements are commonly employed in cost effectiveness evaluations, there have been emphatic arguments against their use.²⁵ Specific to the US, but also relevant to other countries, these issues call for the development and validation of alternate and novel metrics of clinical benefit and harm.
Table 3. Types and Descriptions of Pharmacoeconomic Analyses.

All forms of pharmacoeconomic analyses are hindered by the challenge of considering indirect costs to patients and their families (e.g., loss of work leading to loss of income).²⁶ Additionally, ethical concerns have been raised beyond the use of the utility metric including issues such as distributive justice and incomplete valuations (e.g., productivity costs, costs to other sectors of society from spillover).²⁷ The International Society for Pharmacoeconomics and Outcomes Research (ISPOR) has recently argued for the use of novel use elements (e.g., caregiver time, productivity effects) in cost effectiveness analyses such as value considerations, but the key question is how to measure these elements.²⁸

Of importance for all forms of economic analyses are the study perspective and assumptions. In the US, the perspective is usually from that of the payer, but ideally economic evaluations would also capture individual and societal perspectives. Attempts to evaluate individual and societal perspectives are fraught with questions. How do you include every individual’s perspective? What defines a societal perspective can lead to value decisions based on numeric majorities so it may not reflect those of underrepresented individuals. Additionally, it is important to clearly delineate the assumptions of economic analyses in published evaluations since there are always assumptions involved. Study assumptions should be understandable and credible to clinicians with expertise in the practice area since they do not require the kind of education and training needed to perform economic modeling.

Use of Economic Evaluations in Research and by Governments

Economic analyses have potential usefulness in conjunction with clinical trials, by governmental healthcare decision makers, and at the health system or institutional level. With respect to clinical trials, ISPOR and other groups have published recommendations for researchers performing and reporting economic analyses alongside clinical trials.^29–31 These recommendations help to ensure transparency in the analyses but have the same limitation as when governmental entities or healthcare institutions attempt to make decisions on medication pricing, which is that the true acquisition cost is unknown. Different modeling techniques and attempts to evaluate cost variability through sensitivity analyses are methods employed to improve the validity of the estimations.³²

Australia provides a useful example of how a national government can consider medication pricing as one component of its approval process that attempts to consider a variety of factors when performing evaluations of new therapeutic entities (also see Table 2). Australia has a Pharmaceutical Benefits Advisory Committee (PBAC) that considers five overarching factors in decision making: (1) comparative health gain (e.g., magnitude and clinical importance of effect); (2) comparative cost-effectiveness including healthcare resources not limited to cost of the drug; (3) patient affordability; (4) predicted use in practice and projected annual net cost both for the Pharmaceutical Benefits Scheme that subsidizes access to medications; and (5) impact on the Australian government’s health budget.³³ The pharmaceutical manufacturer is expected to provide as much of the latter information as possible. The US should consider mandating that pharmaceutical companies submit economic information in standardized ways to enable stakeholders to appraise the value of originator and generic drugs, as well as biosimilars and other follow-on biologics drug.

Medication-Related Economic Analyses in the Clinical Setting

Performing economic analyses at the local decision-making level is frequently complicated by the lack of personnel with the time, education, and training necessary to perform such analyses. In the absence of skilled personnel with the time to perform economic evaluations, it is not uncommon for decision making based on cost minimization, cost savings, or cost avoidance, all of which have substantial limitations with respect to quantifying and measuring value and costs despite available guidance.^34,35 To assist clinicians, organizations are increasingly attempting to incorporate economic analyses into clinical practice guidelines given the widespread use of guidelines for clinical decision making. However, attempting to judge economic outcomes in a similar manner to clinical outcomes using GRADE (Grading of Recommendations, Assessment, Development and Evaluation) criteria³⁶ presents unique challenges for guideline developers even if it is assumed that the sponsoring organization can find individuals with expertise in economic evaluations.³⁷ In 2025, the Clinical Guidelines Committee of the American College of Physicians (ACP) published a framework for incorporating economic evidence in clinical guidelines.³⁸ While this framework was promulgated for future ACP guidance documents, it provides useful information for other organizations involved in guideline development. Aspects of this framework were based on previous guidance documents related to assessments of cost effectiveness analyses and modeling evidence,^39–41 and pilot-testing the framework in a clinical practice guideline evaluating pharmacologic therapies for type 2 diabetes.⁴² The discussion section of the ACP framework paper mentioned three challenges and limitations with incorporating economic evidence into clinical practice guidelines: issues related to willingness-to-pay thresholds, limited reporting of economic analyses and interpretation of analyses conducted outside of the US, and the dynamic nature of pricing and other inadequacies of cost effectiveness analysis that hinder certainty of the evidence.

Controlling Prescription Medication Expenditures in the US

The US has begun to exert some of this control at the federal level via the Inflation Reduction Act, but there is a long way to go to reduce overall medication prices. This is particularly true for first-in-class medications that are challenging to the US healthcare system through issues such as system-wide affordability concerns, market access barriers, and questions regarding real world effectiveness; additionally, there are concerns for individual patients via out-of-pocket costs.⁴³ In a recent study, the FDA designated expedited approval (often lacking blinding and comparator medications) to 81% of first-in-class medications compared to 30% for the same period by the European Medicines Association.⁴⁴ Table 4 lists some of the measures that should be considered at the US federal level beginning with increasing pricing transparency throughout the system. Examples include promoting the exchange of health economic information between manufacturers and payers during medication development,⁴⁵ and the use of outcome-based pricing that considers the clinical value of a treatment in determining payback to pharmaceutical companies.⁴⁶ Some of the measures suggested will require a trial-and-error type approach. For example, CMS has announced that it is discontinuing its Value-Based Insurance Design (VBID) model at the end of 2025. The program’s goal was to increase access to and uptake of high-value services and cost-sharing assistance for prescription medications to chronically ill and underserved populations,⁴⁷ but the costs became “substantial and unmitigable.” The need to discontinue this program should not dissuade future attempts at encouraging value-based care aimed at encouraging among other things equitable care delivery.
Table 4. Examples of US Federal Measures Intended to Reduce Prescription Medication Expenditures.

Another aspect of the US healthcare system in need of reform is the pharmacy benefit manager (PBM) industry.⁴⁸ A core service provided by PBMs is establishment of formulary systems to determine drug coverage and patient-level costs, although other functions concern utilization management (e.g., prior authorizations), price negotiations with plan sponsors, creating pharmacy networks (e.g., specialty pharmacies) and mail-order pharmacies.⁴⁹ The current PBM system is fraught with problems that often encourage commercial insurance markets in the US to prefer brand name products over generics or biosimilars due to rebate incentives. Example of proposed reforms include those in a position paper by the American College of Physicians. Recommendations call for improvements in transparency, standards, and regulations for PBMs such as the sharing of the details of nonproprietary pricing information with patients, providers, and the Department of Health and Human Services.⁵⁰ A broader concern in need of further research is private equity’s expansion into healthcare that can lead to a prioritization of profits over appropriate patient care.⁵¹

Congress enacted the 340B Drug Pricing Program to help lower-income and uninsured patients is not living up to its expectations in large part by giving discounts to institutions rather than to patients. For example, a report by the Government Accountability Office found that there were incentives in 340B hospitals to prescribe more drugs and more expensive drugs to beneficiaries when compared to other non-340B hospitals.⁵² As with PBMs, increases in transparency are necessary in conjunction with improved oversight, controlling contract pharmacy arrangements to ensure they are limited to the intended users in low-income areas, and refocusing the program on beneficiaries and not institutions.⁵³

Abuse of patent laws is another issue in need of federal legislation. There are a number of ways pharmaceutical companies keep their control of brand-name product exclusivity, in the US but not in most other high-income world, through exploitation of the patent system and FDA approval process to block competition from generic drugs as well biosimilars and other follow-on biologics, and raise prices.⁵⁴ Whereas most of the world generally limits exclusivity to the molecule, in the US These should be reduced or eliminated. Note in this regard that in many countries only the molecule patent is subject to challenge and litigation, whereas in the US related patents (e.g., production) are also open to consideration. Additionally, the federal government and its agencies should continue to find ways to incentivize and expedite competition through lower-priced generics as well as biosimilars, and other follow-on biologics. As noted by the Congressional Budget Office, not all the suggestions in Table 4 are likely to result in large savings, but all are deserving of consideration.⁵⁵

Considerations for Pharmacists

The national and regional challenges in controlling prescription medication costs can seem beyond the control of the individual pharmacist but there are measures that pharmacists can employ to help contain costs at the local level while advocating for changes at higher levels of government. The pharmacist can start by asking a patient if medication cost is a barrier to adherence.⁵⁶ When prescribing or recommending medications, pharmacists should opt for generics/biosimilars when available and appropriate for the individual patient. Pharmacists can help educate patients about cost-saving options such as patient or public assistance programs, co-payment cards offered by some brand name manufacturers, and discount options such as pharmacy coupons.⁵⁷ In the outpatient setting, extending prescriptions (e.g., from 1 to 3 months) prior to refills may allow for reductions in costs.⁵⁶ Medication optimization includes regularly assessing a patient’s prescriptions to ensure medications are still necessary with appropriate dosing and monitoring for effectiveness and safety.⁵⁶ Adverse drug events from inappropriate choice or dose of medications can be costly to the patient and healthcare system. Finally, pharmacists can refer patients to local programs that offer support beyond the capability of the individual pharmacist.

There are some inherent limitations associated with this discussion of prescription medication expenditures and policy challenges in the US. For example, there are ongoing healthcare executive orders at the federal level and legislative changes at the federal, state, and local levels that are likely to change issues brought up in this article such as projecting expenditures and policy outcomes. Additionally, there are continual changes in other aspects of the healthcare system including the pharmaceutical industry and rapid evolution of drug markets. Hopefully, this article will serve as background information to better understand medication expenditures and policy challenges going forward.

Conclusion

Prescription medication expenditures continue to rise in part through the introduction of blockbuster medications. The US is unique compared to other countries with people of similar income levels in that the US has no universal healthcare or widely implemented system for controlling prescription medication expenditures at the federal level. Beginning in 2026, the Inflation Reduction Act of 2022 allows the Centers for Medicare & Medicaid Services (CMS) to apply negotiated medication prices of an initial ten high-cost medications covered under Medicare Part D, a program to continue beyond 2026 with additional products annually. However, additional measures are necessary to contain rising medication expenditures both through incentives and mandates undertaken at the Federal level including those concerning pricing transparency, requirements for drug approval, and other regulatory and legislative reforms.

Conflicts of interest

Brian Erstad reports no conflicts of interest to disclose.

Ivo Abraham holds equity in Matrix45, LLC, which provides scientific and consulting services to biopharmaceutical, diagnostics, and medical device companies on a non-exclusivity basis; government and international agencies; and academic or health care institutions. By company policy, owners and employees are prohibited from holding equity in client and sponsor organizations (except through mutual funds or other independently administered collective investment instruments), contracting independently with client and sponsor organizations, or receiving compensation independently from such organizations. Any compensation related to the provision of services to government and international agencies, academic institutions, and healthcare institutions by equity owners is collected by Matrix45.

Ivo Abraham does not receive compensation from Matrix45. His only compensation is from the University of Arizona.

Of relevance to this paper, Matrix45 did not provide any services to this study, and Ivo Abraham’s participation was solely as a faculty member at the University of Arizona.

Ivo Abraham is the Quantitative Methods Editor of JAMA Dermatology, which is a compensated editorship contracted to Matrix45. He is Editor-in-Chief of the Journal of Medical Economics, which is an uncompensated editorship but for which he receives an annual allotment of submissions free of publication charges.

Funding

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Acknowledgements and credits

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