PBMs and Patent Monopolies, Not Foreign Free-Riders, Gouge American Patients

Drug companies and their domestic middlemen set American prices, and that is what makes American drug bills obscene. A Fox News op-ed by former Deputy U.S. Trade Representative Jeffrey Gerrish argues the opposite: wealthy countries free-ride on American pharmaceutical innovation, while U.S. patients shoulder roughly three-quarters of global drug profits and more than half of global research-and-development spending. Gerrish wants the Trump administration to stop squeezing manufacturers at home and send its trade negotiators after Britain, Germany, Japan, France, and Switzerland instead. The diagnosis is wrong. So is the prescription.

The markup that hits an American at the pharmacy counter is built here. It is built into the layer between the factory and the patient, into patent law, into pharmacy-benefit managers, into rebate contracts, and into the domestic refusal to bargain. That is where the money is being taken.

Start with the middlemen. Three pharmacy-benefit managers — CVS Caremark, Express Scripts, and OptumRx — process about four out of every five prescriptions in the United States. They sit between the drugmaker and the patient’s insurance plan, charging the plan more than they pay the pharmacy and keeping the difference. The technical term is “spread pricing.” They negotiate rebates with manufacturers, retain a slice of those rebates, and increasingly extract “clawback” payments from pharmacies when a patient’s copay exceeds the drug’s actual price.

None of that money goes to innovation. None of it is paid by a foreign government. It is paid by the American patient or by the American employer funding the plan.

Then there are the patents. A brand-name drug’s compound patent runs twenty years from filing, but the clock starts during discovery, so effective market exclusivity is closer to twelve to fourteen years. Drugmakers extend that window through “evergreening”: new formulations, new dosage forms, new delivery mechanisms, new patient populations. They also use “pay-for-delay” settlements, in which a brand-name manufacturer pays a generic competitor to stay out of the market for years. The Federal Trade Commission has litigated these arrangements.

The result is that the practical monopoly window routinely outlasts the one Congress wrote into law. Foreign price controls do not extend American monopolies. American patent strategy extends American monopolies.

A patent is a legal monopoly. During that monopoly, the manufacturer picks the price. In every other wealthy democracy, the government sits across the table and says no. In America, Medicare — the single largest buyer of prescription drugs in the world — was explicitly forbidden by statute from negotiating prices until 2022. That ban was a domestic choice, written into the Medicare Modernization Act of 2003 under heavy pharmaceutical lobbying.

The Inflation Reduction Act changed the rule for ten drugs effective in 2026, with more to follow. The negotiated reductions are already real. The lesson is not that Washington must drag Britain and Germany to the table. The lesson is that domestic negotiation works.

Gerrish’s numbers are not necessarily false. America does account for roughly 75 percent of global pharmaceutical profits. It does spend more than half of global pharmaceutical research and development. If every developed country paid U.S. prices, global pharmaceutical revenue would rise by more than $254 billion.

But those figures do not prove that foreigners are the cause. They prove that the United States is the only large market willing to tolerate this much price extraction. If Pfizer spends a billion dollars developing a cancer drug and sells it around the world, a country that pays less than the United States is not freeloading. It is bargaining.

The United States pays more because it has refused to bargain. The high American price is the residuum of monopoly power, not the consequence of foreign stinginess. Pressure drug companies on price, and the price comes down. That is the possibility Gerrish’s argument has to pretend does not exist.

Pretending the market is rigged by Berlin is easier than admitting it is rigged by patent law, by domestic policy, and by the lobbyists who write both.

The 340B program makes the same point from another direction. Congress created it in 1992 to help safety-net hospitals serve low-income patients by requiring drugmakers to sell outpatient drugs at deep discounts to certain hospitals and clinics. The hospitals then bill insurers and Medicare at full price. The spread is supposed to fund care for the poor.

Independent studies have documented that 340B hospitals have expanded rapidly into affluent suburbs while charity care has not kept pace with the windfall. Reform is warranted. But again, this is not a foreign problem. It is an American program with American rules, American institutions, and an American spread.

It is true that a domestic-only squeeze could slow investment. Drug pipelines do not run on fumes. If the government hammers prices down without rebuilding the procurement system, capital can flee and pipelines can thin. That concern is real.

It is also incomplete. The answer is not to leave American patients holding the world’s largest pharmaceutical bill. The answer is to build bargaining power at home and close the domestic channels that convert patents and public programs into private extraction.

So build a public option for buying drugs: a federal formulary any American can opt into, with Medicare-scale negotiating power behind it. Expand the Inflation Reduction Act’s negotiation program to every payer — employer plans, the individual market, Medicaid managed care — rather than limiting it to Medicare. Pair that expansion with compulsory licensing for drugs whose prices exceed a benchmark tied to research-and-development recovery plus a fair margin. The goal is not to kill the drug industry. It is to take the price gun out of its hand.

End “pay-for-delay” by making those settlements presumptively unlawful. Reform pharmacy-benefit-manager compensation so the middlemen cannot profit from spread pricing or clawbacks. Require full rebate pass-through to the plan sponsor. Reform 340B so the discount follows the patient who needs it, not the hospital’s tax status. Cap out-of-pocket costs for branded drugs without a generic equivalent, as we cap other catastrophic medical expenses.

And if Gerrish wants a foreign-payment strategy, there is one that does not begin by demanding that American patients keep paying the highest prices in the world. Design a Most-Favored-Customer rule that excludes countries with government price controls from receiving U.S.-developed drugs at U.S.-set prices, and use the leverage the United States already has — the size of its market — to make the price stick.

The negotiation Gerrish wants Donald Trump to take abroad will not lower a single copay at a CVS in Ohio. The negotiation that matters is the one between Washington and the PBMs, the brand-name patent lawyers, and the 340B hospitals.

That is the table to sit at.