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Luca Maini, assistant professor of well being care coverage within the Blavatnik Institute at Harvard Medical College, research competitors and regulation in pharmaceutical markets.
He has studied how nationwide value negotiations in Europe have an effect on entry to new medication and analyzed how mergers and acquisitions, totally different value negotiation strategies, and authorities rules affect spending and entry to medicines in the US.
Why examine pharmaceutical markets?
Worldwide pharmaceutical markets had been valued at greater than $1.5 trillion in 2024. Some predictions say that quantity might attain $3 trillion within the subsequent 10 years. The U.S. pharmaceutical market is the most important on the planet, valued at over $600 billion in 2024 and projected to exceed $1 trillion inside the subsequent decade.
The numbers are rising as a result of populations are getting older, the prevalence of continual illnesses is rising, and there is rising demand for revolutionary therapies, which may be fairly costly.
Well being methods in every single place are fighting unsustainable prices and with typically staggering unmet wants. Understanding how pharmaceutical markets work is essential to fixing each of these issues and in the end guaranteeing that folks have entry to reasonably priced medicines.
Why are prescribed drugs so costly?
Some prescribed drugs are fairly fairly priced. Generic medication are mass produced as a commodity, and a lot of the competitors between producers is to see who can promote the drug for the bottom value.
Branded prescribed drugs, like the most recent GLP-1 medicines for diabetes and weight problems or next-generation most cancers medication, may be extremely wanted, distinctive merchandise which might be managed by a monopoly that has a certain quantity of energy to ask for the next value.
Roughly 90% of prescriptions are generic, however greater than 80% of spending is on branded medication. So, after we discuss affordability and spending, the branded prescribed drugs are extra of a priority.
My analysis focuses on branded prescribed drugs, and people have additionally been the main target of the Trump administration’s negotiations these final months.
Are there massive variations in the way in which markets for branded prescribed drugs work in the US and the remainder of the world?
In most of our peer nations, nationwide governments negotiate costs immediately with the producers. In lots of nations, the nationwide well being service can also be the primary purchaser of prescription medicines.
The primary subject that I studied was European nations’ use of exterior reference pricing, which is immediately associated to the “Most Favored Nation” clause that the Trump administration desires to implement in the US. The administration desires the pharmaceutical firms to ensure that the US will get their greatest value. The influence of those sorts of national-level value negotiations turned the central a part of my thesis as a Ph.D. scholar in economics within the Harvard Kenneth C. Griffin Graduate College of Arts and Sciences.
How have costs been set in the US up till now?
Costs for many personal payers—that is principally business insurance coverage firms and massive employers who self-insure—are negotiated by the three massive pharmacy profit managers, firms that set costs for almost all of prescription drug payers.
As soon as these costs are set, most massive authorities packages that cowl prescribed drugs pay costs which might be tied to business costs. For instance, Medicaid receives the most effective value for prescribed drugs that any business U.S. payer receives. That is known as “Most Favored Customer” standing.
That is one thing else that I’ve written about—we discovered that on account of the Medicaid greatest value clause, the costs that business payers pay are somewhat bit increased than they need to be. Mainly, because the pharma firms know that they will should match the most effective value they offer to a business payer for the massive section of the market that Medicaid represents, they can not afford to decrease their costs whereas they’re negotiating with the pharmacy profit managers.
Does your analysis offer you any perception into what’s taking place with the White Home’s proposed tariffs and negotiations with pharmaceutical firms?
It nearly seems just like the U.S. authorities is utilizing tariffs to barter drug costs, similar to each different nation.
From what I have been capable of surmise, the mannequin for President Trump’s offers with pharma firms is kind of much like the nationwide negotiations that happen in Europe.
One distinction is that as a substitute of managing the negotiations via an in depth regulatory framework with clearly outlined parameters, the US appears to be negotiating individually with every producer on what seems to be an advert hoc foundation.
What’s occurred to this point in the middle of these negotiations?
We do not know for certain as a result of the main points of the agreements haven’t been made public, however apparently a number of firms have agreed to supply some or all of their branded medication to Medicaid at discounted costs, which they are saying are decrease than what’s at present being paid.
These new costs are stated to be on par with the bottom value supplied to a basket of different rich nations. However we do not know which nations are within the basket. We additionally do not know precisely how a lot decrease these costs are than the worth Medicaid is at present paying, as a result of we do not know the costs Medicaid pays—these are protected commerce secrets and techniques.
Aren’t there some adjustments past the commitments to chop costs for Medicaid?
Firms have additionally made commitments so as to add U.S. manufacturing and analysis capability, and a few have agreed to take part within the administration’s proposed TrumpRx platform or via the businesses’ personal web sites to promote prescribed drugs on to sufferers at discounted costs.
There’s little or no element accessible so it is exhausting to foretell what’s going to come of any of this.
How may these adjustments influence general spending or customers’ out-of-pocket bills?
It appears possible that general, the Medicaid system will avoid wasting cash, however sufferers’ out-of-pocket prices most likely is not going to be affected. Price sharing in Medicaid is already very, very restricted so I doubt these decrease costs will trickle right down to sufferers. Clearly, easing the stress on the Medicaid funds can also be crucial and will assist states alleviate a few of the non-financial restrictions they place on medication. For instance, many states restricted using priceless hepatitis C medication like Sovaldi once they first arrived available on the market as a result of they didn’t find the money for to pay for everybody’s therapy.
It is too quickly to say what the direct-to-consumer drug gross sales might imply—all of it is determined by which medication can be found, what the costs are, and the way the platform is applied. I’d additionally level out that many producers already supply direct-to-consumer gross sales.
It seems like there are nonetheless numerous unknowns about these offers.
Proper. Even for the offers which were signed, we do not know a lot concerning the particulars, and there are a lot of firms that have not agreed to any deal but.
However the basic evaluation by trade analysts is that these agreements are higher than the huge tariffs on the pharmaceutical trade that had been proposed, so extra offers are more likely to be signed.
One different factor that is not clear is how these negotiations will influence the costs that Medicare and insurance coverage firms must pay and what that may imply for premiums and out-of-pocket prices for folks with Medicare or personal insurance coverage.
What are a few of the different urgent questions that must be answered?
How will all of the adjustments influence any given affected person’s entry to current medicines or new medicines that come to market within the subsequent few years? How will adjustments in markets, constructing new pharma capability in the US, and adjustments in help for analysis and training influence the event of recent prescribed drugs?
What do we have to reply these questions?
The solutions to all these questions rely upon a fancy, interconnected matrix of things. You’ll be able to’t see the massive image with out understanding the little particulars.
It is vital to have transparency, entry to clear data, and help for well being coverage and financial analysis to guarantee that coverage adjustments are making well being care extra accessible and extra reasonably priced.
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Harvard Medical College
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Q&A: The financial forces that drive prescription drug costs (2025, October 31)
retrieved 31 October 2025
from https://medicalxpress.com/information/2025-10-qa-economic-prescription-drug-prices.html
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