A costly health care crisis is rapidly emerging in the United States, yet most Americans are unaware. Prescription drug spending is surging at an unsustainable rate, propelled by breakthrough treatments with burdensome price tags. If policymakers fail to take corrective actions, the economic and social consequences will harm patients, taxpayers, and, ultimately, the entire U.S. health system.

Bryn L. Dubin

Prescription drug spending is a leading driver of U.S. healthcare spending, totaling $722.5 billion in 2023—up 13.6% from the previous year. To put that in perspective, that is the equivalent of the entire economy of a mid-sized country—like Sweden—being spent only on prescriptions. By 2033, national health expenditures are projected to grow faster than the economy.

This issue is a fundamental shift in the cost of critical medications and how we pay for them. And, right now, our healthcare system is not built to handle it.

Although some pharmaceuticals, such as generic drugs, remain affordable, the real driver of spending is a new class of high-cost treatments—including GLP-1 drugs for obesity and diabetes, as well as cell and gene therapies for rare diseases. While transformative, these drugs cost nearly $1,000 per month, per patient. The issue goes beyond pharmaceutical innovation. It’s about the economy, stupid!

Researchers at Harvard Medical School explain that U.S. drug prices are negotiated by pharmacy benefit managers (PBMs) representing private insurers and large employers. In theory, PBMs lower prescription costs. In practice, they do not.

PBMs negotiate rebates from manufacturers in exchange for providing certain drugs preferential placement on insurance plans. Those rebates are typically tied to a drug’s list price, meaning the higher the price, the bigger the rebate.

This creates a perverse incentive: drug companies raise prices, PBMs secure larger rebates, and insurers see some savings, while patients unfairly pay inflated prices.

Once set, these prices impact the entire system. Government programs, like Medicaid, are tied to the commercial market through best price rebates, which are calculated based on the average costs manufacturers charge wholesalers. The outcome is a system that keeps rates artificially high for all patients.

For Medicaid participants, the consequences are already noticeable. Net spending on Medicaid prescription drugs grew from $31 billion in FY2019 to $46 billion in FY2024. Although Medicaid receives statutory rebates that lower drug prices, overall costs continue to rise. This places a burden on state and federal budgets.

Without reform, policymakers will be forced to make choices that could cut benefits or raise premiums and out-of-pocket costs, affecting millions of patients, providers, and government expenditures. These outcomes are unacceptable, and none are necessary—if we act now.

The solution is not to eliminate GLP-1s and other new therapies. Innovation should be encouraged and rewarded, and patients should benefit from these breakthroughs. How we pay for these treatments must change.

First, the federal government must expand value-based purchasing (VBP) models that tie payments to a given drug’s efficacy. Using a VBP model could ensure the right drugs are used for the right patients while incentivizing providers to administer the most effective care.

Second, Congress should encourage market competition to lower drug prices. Evidence shows that increased competition from generic drug manufacturers can reduce patient costs, with prices decreasing as more competitors enter the market. Streamlined FDA approvals for generics and biosimilars offer lower-cost alternatives—and benefit consumers.

Third, policymakers should codify President Trump’s Most Favored Nation plan into law, which recognizes that the U.S. pays higher prescription prices than comparable nations. Aligning prices with international standards would put downward pressure on costs without expanding government bureaucracy.

Finally, increased transparency in drug pricing will help patients, employers, and policymakers make better-informed decisions. The Department of Health and Human Services should require major pharmacies to disclose standardized pricing information for all prescriptions, including out-of-pocket costs and negotiated rates.

While critics maintain that reining in drug costs may curb innovation, the greater threat is doing nothing. The United States is the global leader in biopharmaceutical innovation, and that leadership must endure. If spending remains unchecked, America’s healthcare system will eventually force tradeoffs that limit patient access to care.

Congress must take remedial action to protect patients and taxpayers. Healthcare leaders and advocates must support reforms that reward the value of care, not volume. And voters must demand accountability from a system that has turned its back on them.

Failing to find a cure to this crisis will result in higher premiums, strained budgets, and fewer Americans able to afford necessary care. The future of our country’s health requires an immediate prescription.