# A fair and coherent way to reduce drug prices

*Medicare bluntly negotiates the drug prices for Part D and gives private plans a competitive domestic supply*

Jonathan A. Borden, MD. Policy proposal, November 2026. Published at https://openhealth.org/policy/reducing-drug-prices/

# Executive summary

Congress should establish universal prescription drug coverage built on an expanded Medicare Part D framework, with national purchasing authority and an enforceable international price benchmark. Manufacturers accepting the benchmark would retain their ordinary patent rights and obtain predictable access to a large purchasing market. When a manufacturer refuses, the government would be authorized to procure an approved equivalent from qualified domestic manufacturers, subject to compensation for the use of patented inventions.

The objective is to lower the price of medicines enough to improve access and reduce the combined burden on taxpayers, employers, and households. Substantial taxpayer savings are a hypothesis to be tested through independent budget estimates, not a result that follows automatically from universal coverage. The proposal therefore links expansion to explicit financing, independently verified savings, and reliable supply.

This is a legislative proposal. It would change eligibility, purchasing authority, intellectual property rules where necessary, and financing. It does not assume that existing executive authority can accomplish the entire program.

# Introduction

As a practicing neurosurgeon, I approach drug pricing from a system in which the payment for my own work is already constrained. There is a common misconception that physicians can charge whatever they please and expect to be paid that amount. In reality, the amount billed and the amount received are often very different. \[1\] Medicare establishes payment rates, and private insurers negotiate contractual allowances.

For physician services covered by the Medicare Physician Fee Schedule, payment is built around relative value units, or RVUs, reflecting physician work, practice expenses, and malpractice expenses. The AMA/Specialty Society RVS Update Committee, commonly called the RUC, recommends relative values; the Centers for Medicare and Medicaid Services, or CMS, makes the final decisions. Those values, geographic adjustments, and a conversion factor determine the scheduled payment. This is an established method of relating payment to the resources required to deliver care. \[2, 3\]

Hospitals also operate within structured payment systems. Under Medicare’s acute inpatient prospective payment system, a hospital stay is assigned to a Medicare Severity Diagnosis Related Group, or MS-DRG, and payment follows a defined methodology with applicable adjustments. A hospital does not simply name its price and require Medicare to pay it. \[4\]

In my experience negotiating private insurance contracts, the rates have been based on CMS relative value units, with a negotiated dollar amount per RVU. The insurer negotiates the conversion rate; the underlying valuation framework is already established. Physicians therefore work within a structured payment system across both Medicare and commercial insurance. A similarly disciplined framework should apply to prescription drugs.

My work in neurosurgery, biomedical research, and open healthcare information systems has reinforced my interest in making complex systems more transparent and accountable. OpenHealth has pursued that goal through open standards and interoperable medical records. The same demand for a clear, defensible framework should apply to the prices Americans pay for essential medicines.

I see no defensible reason why an American should be charged greatly more than a patient in the United Kingdom for the same medicine on comparable terms. The appropriate comparison is the net price paid for the drug, including payments by insurers or public purchasers, rather than the patient’s pharmacy copayment alone. The fairness question is especially pressing when grants from the National Institutes of Health, or NIH, financed research that helped make the medicine possible. Publicly supported discovery and private development both deserve recognition; neither establishes an unlimited claim on American patients and taxpayers. \[5\]

This proposal would apply a more logical purchasing framework to prescription medicines. A manufacturer would be offered access to a large national market at a defensible international price. If it refused, the government could authorize qualified domestic manufacturers to supply the medicine, subject to approval requirements and compensation for patent use. The aim is to use lower prices to expand access and reduce taxpayer costs, with those savings demonstrated through independent analysis.

# Why a national purchasing program is warranted

Citizens of Canada and the United Kingdom pay drastically lower prices for the same prescription drugs that we use in the United States, made by the same manufacturers. The difference is not in the medicine. It is in who does the buying and with what leverage. A RAND Corporation study for the U.S. Department of Health and Human Services, using 2022 data, found that U.S. prices across all drugs were 278 percent of prices in other high-income countries, and that U.S. prices for brand-name originator drugs were 422 percent. Even after adjusting for the rebates manufacturers pay in the United States, net prices for brand-name drugs remained more than three times as high. \[6\]

American patients and taxpayers have a legitimate interest in obtaining prices comparable to those manufacturers accept in other wealthy countries. The United States should reward successful drug development without assuming an unlimited obligation to provide higher returns than comparable foreign markets. A manufacturer’s willingness to sell abroad at a lower price creates a reasonable starting point for negotiation, although foreign prices do not by themselves establish the full cost of innovation.

Taxpayers already support the scientific foundation of many medicines. A published study connected NIH funding to research associated with all 210 new drugs approved from 2010 through 2016, predominantly through basic research on biological targets. That finding does not mean NIH financed every clinical trial or owned every resulting patent. It does establish that the innovation system combines public and private investment. \[5\]

Private developers contribute clinical trials, manufacturing, regulatory work, and investment in unsuccessful candidates. A sustainable policy should reward those contributions while recognizing the public contribution through affordable access. The Congressional Budget Office’s analysis of pharmaceutical research describes both the importance of basic public research and the relationship between expected revenues and private development incentives. \[7\]

# Coverage and financing

Every U.S. resident would become eligible for the new prescription benefit, with automatic enrollment and income-related protection against premiums and cost sharing. Congress would establish the eligibility rules explicitly; current standalone Part D eligibility requires Medicare Part A or Part B. \[8\] Hospital and physician coverage would remain outside this proposal.

The federal purchasing authority would establish prices and purchase selected medicines directly. Existing plans and pharmacy networks could administer claims and distribution under competitively awarded contracts with disclosed fees. Expanding enrollment in the current plan structure without changing purchasing authority would not create the bargaining mechanism proposed here.

Financing would consolidate existing public prescription subsidies and introduce dedicated employer and household contributions that replace the drug-coverage portion of existing premiums. Low-income households would receive subsidies. An actuarially defined allocation would be needed because most employer premiums bundle medical and pharmacy benefits. Contributions would be set through legislation and independent estimates, rather than assuming all projected savings will occur.

The transition must prevent duplicate payment. Employers shifting prescription obligations to the new program would reduce or remove the corresponding insurance benefit and pay the prescribed contribution. Policymakers should measure whether premium reductions reach employees through lower deductions or compensation; those gains should not be assumed to appear immediately.

Medicaid and other public programs would coordinate benefits and financing without surrendering existing prices that are lower than the new benchmark. Existing beneficiaries would retain continuity of therapy and protections during the transition.

# The price offer

The opening ceiling would be the lowest verified net price routinely available in a specified group of comparable high-income countries, including the United Kingdom. Comparisons would adjust for dose, formulation, package size, and material contractual differences. Net prices must include rebates and discounts. Exceptional humanitarian donations and short-term clearance transactions would be excluded under published rules.

Manufacturers would report relevant foreign net prices confidentially to the purchasing authority, subject to audit and penalties for false reporting. Public reports would disclose aggregate savings and the methodology while respecting protected commercial information. Currency conversion would use a published averaging method to avoid abrupt changes caused by exchange-rate movements.

The benchmark would be a ceiling, not a guaranteed payment. Competitive bids or existing public discounts could yield lower prices. For medicines without a comparable foreign launch, a provisional price would be established through clinical value assessment and negotiation, followed by reconciliation when comparable evidence becomes available. Time-limited exceptions would require a published justification and independent review.

Participating manufacturers would receive multiyear agreements specifying prices, supply obligations, and clinically appropriate purchasing commitments. They would retain patent protection against unauthorized competitors. The program would not promise purchase volumes that override clinical judgment or encourage unnecessary prescribing.

# A credible alternative when negotiations fail

After a defined negotiation period, the purchasing authority could authorize alternative production and invite competitive bids from qualified manufacturers with U.S. production capacity. It should ordinarily award contracts to more than one independent supplier. A consortium could help coordinate capacity, but joint bidding must not eliminate competition or become a new exclusive supplier.

Contracts would include quality requirements, delivery milestones, inventory reserves, and transparent cost provisions. Purchase commitments could support investment in facilities and domestic ingredients. The decision to manufacture would compare the full delivered cost, including patent compensation and startup expenses, with the originator’s final offer.

Existing law provides a foundation. Under 28 U.S.C. 1498, authorized patent use by or for the federal government generally gives the patent holder a compensation remedy against the government rather than an injunction against the authorized contractor. Congress should expressly authorize the proposed purchasing and production structure instead of assuming ordinary Part D reimbursement automatically meets this standard. \[9\]

Compensation would follow the applicable statutory standard and judicial process; it would not automatically equal a generic royalty or the manufacturer’s asserted lost profits. Congress should define a transparent compensation framework consistent with constitutional and international obligations. The proposal would authorize specified uses of patents, rather than cancel patents worldwide.

Patent authority alone is insufficient. Regulatory exclusivity granted by the Food and Drug Administration is distinct from patent protection, and an authorized competitor still needs an approval pathway. Legislation would address any exclusivity barriers and lawful access to necessary reference materials while retaining safety, efficacy, quality, and equivalence standards. It must not assume that patent use conveys trade secrets or manufacturing expertise. \[10\]

The first procurement cases should therefore involve medicines for which alternative production is feasible. Complex biologics and products with difficult manufacturing processes may require longer timelines and different contracts. Patients should retain access to the originator medicine until an approved and dependable replacement is available.

# Taxes and tariffs as supplementary tools

Congress could consider targeted financial penalties for violations of reporting, supply, or agreed pricing obligations. A tax tied to noncompliance would need explicit statutory design, due process, and assessment of whether its costs would be passed on to patients or public purchasers.

Portfolio-wide import tariffs should not be the principal enforcement mechanism. They affect imported products and may raise costs for unrelated medicines before substitutes are available. Any proposed tariff should undergo a separate legal and supply assessment, with essential-medicine safeguards. Alternative production provides the more direct response to refusal: an alternative source of the medicine at issue.

# The fiscal test

The program must distinguish three outcomes: lower national prescription spending, lower federal spending, and lower household costs. A reduction in the first does not automatically produce a reduction in the other two. Universal public coverage can move spending onto the federal budget even when it lowers total costs.

The budget estimate should calculate new federal benefit payments, administration, manufacturing support, transition costs, and patent compensation; subtract public prescription spending displaced by the program; and then subtract dedicated contributions. Only a reduction in the resulting net federal cost relative to current law constitutes federal budget savings.

National savings should be measured using actual net prices and delivered quantities, including existing rebates. The estimate must account for increased use as coverage improves, changes in prescribing, supply costs, and manufacturer responses. Potential reductions in hospitalizations from improved adherence should be counted only where evidence supports them. Rebates, premium reductions, and lower procurement prices must not be counted twice.

Congress should request independent estimates with optimistic, central, and adverse assumptions. The adverse case should include delayed manufacturing, higher compensation awards, weaker-than-expected discounts, and increased utilization. The public should be able to see the break-even price reductions and contributions required under each case.

No dollar savings estimate is asserted in this proposal. The case for the proposal is that enforceable purchasing power could lower prices sufficiently to finance broader access and reduce taxpayer costs. Independent scoring must establish whether the specific legislation achieves that result.

# Innovation and taxpayer return

The incentive to accept the benchmark is continued exclusive supply at a negotiated price in a large market. The alternative-production mechanism makes that offer credible. Applying the mechanism predictably, with advance rules and review, is preferable to arbitrary threats against individual companies.

To those who argue that structured and constrained drug payments must suppress innovation, I would point to the rest of mainstream clinical medicine. Physicians and hospitals already operate under structured public payment systems and negotiated private insurance contracts. I am excluding purely elective cosmetic surgery and medical-spa services commonly purchased outside insurance. As I described in the introduction, even commercial physician payments are built on CMS relative values. Society has accepted this payment framework while continuing to expect advances in surgery, robotic procedures, and AI-assisted care. Pharmaceutical companies should explain why their industry requires a different standard. The principle should be consistent: reward innovation within a defensible payment framework and require evidence that a particular constraint would undermine it.

This comparison does not imply that every new surgical, robotic, or AI-assisted technology receives adequate reimbursement, or that drug development has the same economics as clinical practice. It does challenge the assertion that pharmaceutical innovation requires freedom from comparable pricing discipline. Anyone opposing reform on that basis should identify the particular innovations likely to be lost, explain the mechanism, and weigh that risk against the benefits of affordable access. A general appeal to innovation is not sufficient justification for substantially higher American prices.

A predictable pricing rule can nevertheless reduce expected returns and alter some future research investment. Policymakers should assess that possibility rather than presume either that all innovation will suffer or that no investment will change. They should track development of therapies for small populations and unmet needs. Targeted research grants, milestone prizes, or purchase commitments could support socially valuable work, with their costs included in the fiscal assessment.

Future federally funded inventions could carry clearer access and licensing conditions. Those conditions should be established prospectively where possible. Existing government rights attach to particular inventions and funding arrangements; NIH support for underlying science does not create a general right to control every downstream drug. The Government Accountability Office finds that price-based march-in authority would likely reach only a limited number of medicines. \[11\]

# Implementation and accountability

Congress should begin with a scored statute establishing the authority, financing, and independent review process. The first operational stage would build the price database, negotiate an initial group of high-spending medicines, and arrange alternative production where technically feasible. Expansion across ages would follow a published schedule tied to demonstrated claims capacity, financing, and continuity of care.

An independent oversight body would report annually on net public costs, patient out-of-pocket spending, supply interruptions, treatment access, patent compensation, administrative expenses, and domestic production capacity. Reports would compare results with the original budget assumptions and identify distributional effects by income, age, and existing coverage.

A statutory review would require corrective action if prices fail to fall as projected or access deteriorates. Corrections could revise procurement, contributions, or the expansion timetable while protecting existing patients. Program success should be judged by medicines delivered reliably at lower combined cost, rather than by the number of negotiations announced.

# Conclusion

This proposal offers a focused route toward universal prescription access and stronger cost control. Its central bargain is straightforward: manufacturers can supply a large national market at a defensible international price, or face lawful competition from qualified domestic manufacturers with appropriate patent compensation.

The United States has the capacity to create that bargaining structure through legislation. The responsible next step is to specify and independently score it. If verified purchasing savings exceed the additional costs after financing is accounted for, broader drug coverage could reduce the burden on taxpayers while improving access. That is the proposition this proposal asks Congress to test.

# Sources

\[1\] Centers for Medicare and Medicaid Services. Medicare Physician and Other Practitioners by Provider Data. Explanation of submitted charges and payment rates.

[Read source](https://data.cms.gov/provider-summary-by-type-of-service/medicare-physician-other-practitioners/medicare-physician-other-practitioners-by-provider)

\[2\] Centers for Medicare and Medicaid Services. Physician Fee Schedule.

[Read source](https://www.cms.gov/cms-guide-medical-technology-companies-and-other-interested-parties/payment/physician-fee-schedule)

\[3\] American Medical Association. RVS Update Committee.

[Read source](https://www.ama-assn.org/about/rvs-update-committee-ruc/rvs-update-committee-ruc)

\[4\] Centers for Medicare and Medicaid Services. Acute Inpatient Prospective Payment System.

[Read source](https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps)

\[5\] Cleary et al. Contribution of NIH funding to new drug approvals 2010–2016. PNAS, 2018.

[Read source](https://pmc.ncbi.nlm.nih.gov/articles/PMC5878010/)

\[6\] Mulcahy et al. International Prescription Drug Price Comparisons: Estimates Using 2022 Data. RAND Corporation, 2024.

[Read source](https://www.rand.org/pubs/research_reports/RRA788-3.html)

\[7\] Congressional Budget Office. Research and Development in the Pharmaceutical Industry, 2021.

[Read source](https://www.cbo.gov/publication/57126)

\[8\] Centers for Medicare and Medicaid Services. Medicare Prescription Drug Eligibility and Enrollment.

[Read source](https://www.cms.gov/medicare/enrollment-renewal/part-d-enrollment-eligibility)

\[9\] Federal Acquisition Regulation. Subpart 27.2, Patents and Copyrights; see also 28 U.S.C. 1498.

[Read source](https://www.acquisition.gov/far/subpart-27.2)

\[10\] Food and Drug Administration. How can I better understand Patents and Exclusivity.

[Read source](https://www.fda.gov/industry/fda-basics-industry/how-can-i-better-understand-patents-and-exclusivity)

\[11\] Government Accountability Office. Intellectual Property Information on Draft Guidance to Assert Government Rights Based on Price. GAO-26-107885.

[Read source](https://www.gao.gov/products/gao-26-107885)