“Affordability” is among the top political controversies since the 2020 economic lockdowns unleashed historic price inflation. Besides energy that is affected by other causes, housing, groceries, and child care dominate the conversation. But always on the radar is the product and industry that attracts universal scrutiny and condemnation: prescription drug prices.
For background, when producers and traders are free to produce and trade, rising prices are a signal of supply shortages and falling prices signal surpluses. In turn, that creates a ripple effect among supply networks, including alternatives, that resolve the issue most efficiently. But when prices are manipulated by the force of regulation, subsidies, tariffs, antitrust, and class-action lawsuits, price signals become terribly complex.
On top of that, the Food and Drug Administration (FDA) assigns an 11-digit National Drug Code (NDC) number with dozens of possibilities for each active ingredient. Then the Centers for Medicare and Medicaid Services (CMS) assigns Level II J and Q codes for clinical settings and newer drugs. There are other systems, but these are used most for billing in the United States.
A widely used and pricey example is the anticoagulant (blood thinner) Eliquis. The wholesale acquisition price (WAC) is $521 per month, the Medicare maximum fair price (MFP) is $231, the pharmacy benefit manager (PBM) price is also negotiated, the Medicaid net price is a 50% discount plus state rebates, the discount card cash price is also negotiated to $231, and then there is the nearly free 340B price to charitable hospitals, who then resell these drugs at prices similar to above.
In my case, 90-day refills are charged wildly different out-of-pocket costs depending on the time of year and my drug plan’s deductible and copays. And if my prescription was classified as a controlled substance, refills could be even more complicated. Regardless, no one knows their true costs, and what costs me over $1000 per year out of pocket plus insurance premiums is free to millions of people on Medicaid.
In any event, when prescription drugs or normally priced goods and services increase rapidly, or they are deemed too high for the politically correct standard of the day, producers and traders will be demonized for price gouging. And in highly regulated industries like education, housing, food, and medicine, the producers and traders — the only ones creating value — will become the targets of the “humanitarians” of the State and their media foghorns.
But this also applies to falling prices. On September 18, 2026, the Trump administration released this: Fact Sheet: President Donald J. Trump Announces Lower Drug Prices for All 50 State Medicaid Programs - and it reads:
Under the GENEROUS Medicaid Payment Model, participating pharmaceutical manufacturers will provide State Medicaid programs with rebates on expensive brand-name drugs to ensure the final price to Medicaid does not exceed the MFN price.
The MFN price is “Most Favored Nation,” and in essence, state Medicaid bureaucracies will be reimbursed so that the Trump administration can claim victory over foreign discounts “while maintaining coverage for the most vulnerable.” Lost in the messaging is those of us who are not Medicaid-dependent and paying for Medicaid dependents will get no relief from the heavily manipulated drug prices.
The point is that the pharma price mechanism has become so polluted with State intrusion that it is impossible to know what anything really costs. Capitalizing on this mess, the Council of Economic Advisors released a chart on September 20, 2026, to illustrate changes in drug prices during the first 18 months of every presidential administration going back to Nixon.
Using Consumer Price Index (CPI) data from the Bureau of Labor Statistics (BLS), it appears that consumer drug prices have fallen about 4% during Trump’s second term - the first and only decline for the first 18 months of a presidency in almost 60 years. Yay. But, contrary to the common wisdom of the State and their academics beholden to GDP, consumer spending accounts for only about 35% of economic activity. Digging deeper into the CPI calculation is investment banking firm Bourne Partners:
The CPI data for prescription drugs reflects what pharmacies actually collect. As such, channel and mix can heavily influence the index even when list prices are stable (or rising). Also, when a branded drug loses patent protection... the timing of patent expirations can mechanically affect the CPI calculations.
But like all things related to economics and prices these days, the obsession with the trees that don’t really matter is intended to obscure the forest. As reported by drugchannels, consumers only pay 12% of the total cost. Government Medicare, Medicaid, Veterans Administration, and CHIP programs pay 51%, and private medical insurance pays the remaining 37%.
Essentially, 88% of drug prices are paid by third parties who are not the end user and will not exercise the same due diligence over need and quality that naturally occurs when someone is spending their own money on themselves. In addition to this horribly distorted price mechanism, the costs associated with getting new drugs through clinical trials and approval can be astronomical.
However, this is difficult to quantify as the line between research and development and regulatory compliance is blurred. The widely used industry study from Tufts Center for the Study of Drug Development is $2.6 billion, including the cost of capital and the cost of failed candidates. Two other studies put the average cost of new drug development at $200 million to $500 million, but even this cannot be attributed to FDA compliance alone.
Individual clinical trials mandated by the FDA are far less than that, but that avoids the critical question. It is a matter of political liberty and individual sovereignty. Anyone facing grave circumstances — or not — has the right to experimental drugs and treatment options regardless of government policy. How many millions of lives may have been improved and lengthened without the heavy hand of self-righteous humanitarians with lifetime pensions and benefits?
No matter what you hear, drug prices are not coming down, and pharmaceutical and insurance companies are not the villains. More importantly, it’s impossible to know what amazing pharmaceuticals and treatments would be available for mass distribution if the capital destroyed by compliance costs had been invested in research and development by profit-seeking companies.
As proven by Adam Smith in his 18th century reporting and teaching, codified in An Inquiry Into the Nature and Causes of the Wealth of Nations, everything becomes more affordable in economies that specialize. A prime example is the availability of his book on Amazon: paperback $7.10, Kindle $.99.
And everything imaginable and not yet imagined becomes more available with ever greater savings by more productive people, but there’s a catch. Money must accumulate with investors who find the people with the ideas and the talent for new specialties. Naturally, that includes chemistry, biology, imaging, and genomics. Economies are people. Both operate best without force.
To satisfy the needs of everyone — regardless of ability to pay — capital must be freed from government destruction. This will inevitably lead to greater advances in medicine and greater funding of the charitable enterprises that voluntarily assist people who are in need — through no fault of their own — and otherwise.
And it will also lead to a wider variety of choices for the purchase of a wider variety of pharma and diagnostic services. A marvelous step in that direction is health savings accounts (HSAs) in America. These allow for tax-deductible contributions; investment earnings and withdrawals are income tax-free; qualified expenses include a broad range of deductibles, over-the-counter medicine, and dental and vision.
But there are limits to the amounts that can be contributed; you must be enrolled in a high-deductible health insurance plan; you cannot be claimed as a dependent on someone else’s tax return, or have other insurance. Even without income eligibility limits, these restrictions are arbitrary and add to the complexity of medical pricing - including the time and money of tax consulting and filing returns. In effect, HSAs have become qualified retirement plan vehicles for people who can afford to pay their deductibles and copays out of pocket.
That’s not a bad thing, but the phenomenon exposes the contradictions and abuse of the State’s holy trinity: income taxes, price fixing, and single payer systems. However, a subscription service for the next new Netflix, YouTube, or Google accounts of prescribed pharma and diagnostics is easily imaginable — but only if and when the State gets the hell out of the way.
