Imagine a tube of toothpaste. Countries with national healthcare systems — Canada, the UK, Germany, France, Japan — have clamped one end of the tube. They exercise price controls or negotiate aggressively as unified national buyers. Pharmaceutical costs in those countries are suppressed.
Physics is physics. All that pressure has to go somewhere. It goes to the open end of the tube — the only major market in the developed world that has not clamped down. The United States.
Americans pay roughly two to three times what Canadians or Europeans pay for the exact same medications. Same molecule. Same manufacturer. Same clinical effect. Different country, different price — and not different by 10 or 15%. Different by a factor of two or three. This is not a market anomaly. It is the direct, predictable consequence of a specific policy decision made in 2003. And it has cost American patients, employers, and the healthcare system hundreds of billions of dollars every year since.
The 2003 Decision That Gave Pharma a Blank Check
In 2003, Congress passed the Medicare Modernization Act. Among its provisions was a clause that explicitly prohibited the Department of Health and Human Services from using Medicare’s purchasing power to negotiate drug prices.
Let that settle. The federal government — already the single largest purchaser of healthcare in the country — legislated away its own right to negotiate on behalf of its beneficiaries. Walmart uses its scale to extract better prices from suppliers. The Department of Defense uses purchasing scale to negotiate hardware costs. Congress looked at Medicare’s purchasing power and said: you are forbidden from using it. Just pay whatever manufacturers ask.
This was a direct concession to pharmaceutical industry lobbying. Whatever else the Medicare Modernization Act accomplished, that specific clause was a gift to the pharmaceutical industry worth hundreds of billions of dollars over the following two decades. And most Americans do not know it happened.
The Inflation Reduction Act of 2022 cracked the door slightly, permitting CMS to negotiate prices for a limited number of high-cost drugs. But it remains a crack. The United States remains the only major developed country without systematic pharmaceutical price controls or meaningful national negotiation.
Here is the particular absurdity: Medicare already sets prices for physicians. It already sets prices for hospitals. Doctors and hospitals are price-takers — they can decline Medicare patients, but they cannot charge whatever they want. This is price control. We have accepted it for providers for 40 years and nobody calls it un-American. But drug price negotiation is somehow a different category. That reasoning has cost Americans trillions of dollars.
What a PBM Actually Is — And Why You Should Be Paying Attention
PBM stands for Pharmacy Benefit Manager. These are intermediaries that manage the complexity of drug purchasing — creating formularies (lists of covered drugs), negotiating with manufacturers, managing pharmacy networks, processing claims. The premise was reasonable: with 15,000 available pharmaceuticals, employers and insurers needed specialist help managing drug benefits at scale.
Today, three PBMs — CVS Caremark, Express Scripts, and OptumRx — process roughly 80% of all US prescription drug transactions. And those three PBMs are owned by the three dominant commercial health insurers: CVS Health, Cigna, and UnitedHealth Group. The insurer and the PBM are, at the largest scale, the same company.
Here is where the incentives go wrong. PBMs earn money through rebates — payments from drug manufacturers in exchange for preferred formulary placement. The rebate is calculated as a percentage of the drug’s list price. The higher the list price, the larger the rebate the manufacturer can offer. The larger the rebate, the more attractive the drug becomes for formulary placement — regardless of whether it is actually better than cheaper alternatives.
The result is perverse: drug companies that want to price their products competitively get penalized. Sutaria references a story told by a pharmaceutical CEO who tried to price a new drug below market. The PBMs told him flatly they would not put it on formulary unless he tripled the price. ‘Don’t worry,’ they said, ‘we’ll make it up to you in rebates.’ That CEO wanted to compete on price. The PBM system told him he was not allowed to.
“Show me how a man gets paid and I’ll tell you exactly how he’s going to act.” — Dr. Peter Attia
The sticker price of a drug becomes, in this system, largely a fiction — a negotiating artifact for a rebate transaction that happens between large institutions and is invisible to patients. But the patient without insurance, or who has hit their deductible, pays the sticker price. And the system has removed every incentive for manufacturers to make their sticker price reflect actual value.
The Innovation Argument — Real, But Overstated
The pharmaceutical industry’s defense of US pricing rests on a legitimate point: the United States funds roughly 75 to 80% of global pharmaceutical innovation. The science that produces new drugs comes largely from American academic health centers, funded by NIH grants and private investment. And the premium pricing available in the US market is what makes that investment economically viable.
Sutaria’s comparison to defense policy is apt. After World War II, the United States agreed to provide global security — the Bretton Woods framework, the nuclear umbrella, the naval guarantee of free trade routes. We subsidized the world’s security, and built the dominant global economic order in exchange. Something similar may be happening with pharmaceuticals: we fund the innovation, develop the drugs, pay full price, and the rest of the world gets the same products for 40 to 60 cents on the dollar.
Is innovation valuable enough to justify some premium? Absolutely. Is a two-to-three-times premium paid exclusively by Americans, while the rest of the world free-rides on American investment, sustainable or equitable? That is a harder case to make.
The more pointed question is how much of what we pay for is genuine breakthrough innovation, and how much is paying premium prices for ‘me-too’ drugs — second and third entrants in a drug class that offer marginal improvement over established treatments but are priced aggressively because the market moves to the newest version. American drug pricing rewards the seventh statin at roughly the same premium level as the first statin. Most of the rest of the world does not. The difference accumulates to hundreds of billions of dollars annually.
The GLP-1 Problem: Happening Now in Southern Oregon
The drug pricing crisis is about to get significantly more acute. The GLP-1 agonist class — semaglutide and tirzepatide, known commercially as Ozempic, Wegovy, Mounjaro, and Zepbound — may represent the most consequential pharmacological development in a generation. These drugs demonstrably reduce obesity, improve metabolic disease, and are showing promise across a range of conditions associated with metabolic dysfunction. They also cost, in current US pricing, roughly $12,000 to $15,000 per patient per year.
In Canada, a fraction of that. In Europe, similarly. Same drug, same manufacturer — but Canada and Europe squeezed the toothpaste tube. We did not.
Consider Southern Oregon specifically. We have above-average obesity rates. We have above-average diabetes rates. AllCare Health — the physician-owned Coordinated Care Organization serving Jackson, Josephine, Curry, and southern Douglas counties — manages care for over 64,000 Oregon Health Plan members in our region. Oregon’s Medicaid program has limited coverage of GLP-1 drugs. Not because they do not work. Because at US pricing, covering them for the populations that most need them is fiscally prohibitive.
The people in our region who most need these drugs — lower-income, higher chronic disease burden, on Medicaid — are the least likely to have access to them. The people with access are the commercially insured, the employed, the relatively affluent. We have built a system where the most effective metabolic drugs in history are effectively a luxury. That is the toothpaste tube problem in its most current, most local form.
What Needs to Change — and What Southern Oregon Can Do
Drug pricing reform is primarily a federal policy problem. No regional organization will solve it locally. But that does not mean our region is without agency.
Oregon’s congressional delegation — Senators Merkley and Wyden, Representatives Bentz and Bonamici — should hear directly from Southern Oregon constituents on pharmaceutical pricing. The connection between the 2003 prohibition on Medicare drug price negotiation and the small business premium letter that arrives every fall is direct. That connection ought to be named explicitly and repeatedly.
Oregon’s Health Authority makes decisions about the Oregon Health Plan formulary — what drugs are covered for Medicaid enrollees, at what tier, under what conditions. That process is public, with opportunities for comment. Providers who see patients unable to access evidence-based treatments have standing to engage it, and should.
The PBM system deserves scrutiny at both the state and regional level. Some states have begun legislating transparency requirements for PBM rebate practices. Oregon’s Legislature and the Oregon Insurance Division are the relevant venues. Greater transparency about how formulary decisions are made is a prerequisite for accountability.
And most immediately actionable: every Southern Oregon employer providing health insurance is absorbing the cost of American drug pricing in their annual premium increases. Making that connection explicit, and organizing regionally around advocacy for pricing reform, is work the Rogue Valley Chamber, SOREDI, and the Southern Oregon Business Alliance could take on now. The premium increase is not abstract. It is the policy.
In the final article of this series, we turn to the outcomes question: why, after all this spending, Americans live shorter lives than people in countries that spend half what we do, what that means for Southern Oregon specifically, and what structural changes could actually move the needle in our region.
Next: Article Three — Why We’re Dying Younger Despite Spending More — and What Southern Oregon Can Actually Do About It
This series was produced by Reimagine Healthcare (reimagine-healthcare.org) for educational purposes. It is based on analysis of publicly available research, a conversation between Dr. Peter Attia and Saum Sutaria, and publicly reported data on Southern Oregon’s health system. It is not intended as medical or financial advice.