Cost Affordability of Medicines vs. Research and Development for New Treatments: Which Should Be the Priority?

 Context

The soaring cost of prescription drugs in the United States has ignited a heated debate, set against the urgent need for affordable medications against concerns that price controls could undermine the research and development (R&D) that drives life-saving pharmaceutical innovations. 

Policies like the Inflation Reduction Act (IRA) and proposals such as President Trump’s “Most-Favored Nation” (MFN) executive order, whereby the United States pays the same price as the nation that pays the lowest price anywhere in the world, have intensified this tension. This aims to lower drug prices through government intervention. The underlying conflict between affordability and innovation remains a critical challenge for U.S. pharmaceutical policy. 

For example, drugmakers have long claimed that any threats to their profits could affect the research they conduct to develop new drugs. They argue that without the promise of profitability, there is no incentive to dedicate years of time and research to creating a single drug. “Importing foreign prices will cut billions of dollars from Medicare with no guarantee that it helps patients or improves their access to medicines,” Stephen J. Ubl, the president and CEO of PhRMA, said. “It jeopardizes the hundreds of billions our member companies are planning to invest in America, making us more reliant on China for innovative medicines.”

Which should take priority? Is there a trade-off? Could a balanced policy be developed?

Our article evaluates the competing arguments, explores how countries like China and Japan have navigated similar challenges, and proposes a policy framework that draws on evidence to chart a path that provides access to affordable drugs while sustaining robust research and development.

The Affordability Crisis: The Case for Lowering Drug Prices

Advocates for aggressive drug price controls argue that Americans significantly overpay for medications compared to other developed nations, creating a multifaceted crisis: 

• Cost Disparity: Americans face prescription drug costs nearly three times higher than those in peer nations, creating substantial economic strain.

• Healthcare Accessibility: According to Kaiser Family Foundation polls, approximately 79% of Americans report that the costs of prescription drugs are unreasonable, resulting in missed treatments, dosage reduction, and severe financial distress.

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• Global Subsidization: According to research by the University of Southern California, the U.S. market disproportionately funds global pharmaceutical profits, accounting for approximately 64 to 78% of the industry’s international earnings. Critics argue this effectively subsidizes lower drug costs abroad.

• Systemic Inefficiencies: Intermediaries, such as Pharmacy Benefit Managers (PBMs), significantly inflate drug costs in the U.S. market compared to direct negotiation models in European healthcare systems. (See how PBMs justify their practices.)

Safeguarding Innovation: The Necessity of Sustained Pharmaceutical R&D

Conversely, the pharmaceutical industry argues that strict price controls could significantly reduce investment in new drug development:

• Financial Impact on R&D: Industry groups argue that severe cuts in drug prices will directly reduce profits, which are essential for reinvesting in drug research and innovation.

• Dependence on U.S. Revenues: Since the U.S. accounts for most (70%) of global pharmaceutical profits, drastic reductions in U.S. drug prices would severely impair worldwide research and development (R&D) capacities.

• Operational Constraints: Existing barriers, such as FDA delays, compound the risk of reduced R&D productivity if profit margins shrink significantly due to aggressive price control measures.

• Investment Incentives: Studies by the Information Technology and Innovation Foundation (2023) show that OECD price controls have historically decreased global pharmaceutical R&D funding, suggesting that more fair global pricing strategies, not drastic unilateral U.S. cuts, are needed to sustain innovation.

Key Drivers Behind High Drug Prices in the U.S.

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Safeguarding Innovation: The Necessity of Sustained Pharmaceutical R&D

Conversely, the pharmaceutical industry argues that strict price controls could significantly reduce investment in new drug development:

• Financial Impact on R&D: Industry groups argue that severe cuts in drug prices will directly reduce profits, which are essential for reinvesting in drug research and innovation.

• Dependence on U.S. Revenues: Since the U.S. accounts for most (70%) of global pharmaceutical profits, drastic reductions in U.S. drug prices would severely impair worldwide research and development (R&D) capacities.

• Operational Constraints: Existing barriers, such as FDA delays, compound the risk of reduced R&D productivity if profit margins shrink significantly due to aggressive price control measures.

• Investment Incentives: Studies by the Information Technology and Innovation Foundation (2023) show that OECD price controls have historically decreased global pharmaceutical R&D funding, suggesting that more fair global pricing strategies, not drastic unilateral U.S. cuts, are needed to sustain innovation.

Lessons from China and Japan: Models for Global Policy

While the U.S. grapples with balancing affordability and innovation, countries like China and Japan offer examples of managing pharmaceutical costs while supporting domestic innovation.

China: Centralized Pricing and Incentives for Domestic Innovation

China has implemented a centralized drug pricing system through its National Healthcare Security Administration (NHSA), which negotiates prices for high-cost drugs through competitive bidding processes. These negotiations often result in significant price reductions—sometimes exceeding 90%—for newly approved drugs entering the national reimbursement list (Liang et al., 2023). However, China has also invested heavily in domestic biopharmaceutical R&D to prevent stifling innovation through subsidies, tax incentives, and expedited regulatory pathways for innovative therapies.

Moreover, China has promoted the development of biosimilars and generics to reduce reliance on imported medicines. This dual strategy—aggressive price negotiation combined with strategic support for local innovation—provides a model for how governments can balance affordability with long-term pharmaceutical development goals.

Japan: Price Controls with Innovation Safeguards

Japan employs a biennial drug price review system that adjusts pharmaceutical prices downward based on usage, cost-effectiveness, and international benchmarks. Despite these regular price reductions, Japan supports robust pharmaceutical innovation by offering special designations for novel or breakthrough therapies, which delay price cuts and provide temporary exclusivity (Tsuji et al., 2022).

Additionally, Japan encourages innovation through public-private partnerships, streamlined clinical trial approvals, and strong intellectual property protections. These mechanisms help cushion the impact of price controls on innovation incentives, making Japan’s approach particularly relevant for Western markets seeking a middle path between affordability and R&D sustainability.

These international experiences underscore the importance of designing cost-conscious but also innovation-sensitive policies. They show that strategic interventions—such as targeted price negotiations, incentive structures for innovators, and robust generic competition—can coexist effectively.

Summary Table: U.S. Pharmaceutical Market Drivers

Path Proposal: The “Value-Based Access and Innovation Framework”

To reconcile affordability with innovation, policymakers require a nuanced and multifaceted approach. The proposed “Value-Based Access and Innovation Framework” offers an alternative solution to harmonize these competing interests and objectives:

• Moderated International Price Benchmarking: The U.S. could establish prices based on averages from economically comparable nations rather than rigidly enforcing the lowest international price. While lowering U.S. drug costs, this moderated approach avoids the dramatic disruptions posed by a strict MFN policy, as the Center for Strategic & International Studies (2023) cautioned.

• Enhanced Value-Based Pricing and Negotiation: Strengthening organizations like the Institute for Clinical and Economic Review (ICER) would enable more rigorous assessments of drug value, aligning prices with demonstrated therapeutic efficacy. Empowering Medicare to negotiate drug prices based on these comprehensive evaluations could ensure fair pricing and sustained industry engagement, aligning with initiatives already in the Inflation Reduction Act.

• Strategic R&D Incentives: To safeguard pharmaceutical innovation, targeted incentives such as enhanced R&D tax credits, accelerated regulatory pathways, priority review vouchers, and advanced market commitments should be implemented. According to a Brookings Institution analysis, these strategies have proven successful historically, as demonstrated by the Orphan Drug Act’s incentivization of treatments for rare diseases (Silber et al., 2021).

• Reforming the Pharmaceutical Supply Chain: Improved transparency and accountability from Pharmacy Benefit Managers (PBMs), ensuring that discounts directly benefit patients, would reduce out-of-pocket costs and increase healthcare system efficiency without negatively affecting funds intended for research and development (R&D). The Association for Accessible Medicines (2024) highlights that PBM reforms could substantially improve market dynamics and patient accessibility.

• Accelerating Competition: Facilitating the market entry of generic and biosimilar medications is crucial. By promoting robust competition, these alternatives significantly reduce healthcare expenditures, allowing for greater resource allocation toward new therapeutic innovations.

Finally: Sustaining Balance and Innovation

The “Value-Based Access and Innovation Framework” offers an integrated approach that addresses the dual imperatives of affordability and pharmaceutical innovation. Achieving this delicate balance involves carefully calibrated price negotiations, meaningful R&D incentives, and comprehensive systemic reforms to promote efficiency and transparency.

Insights from global policy experiences, such as those examined by The Health Foundation (n.d.) and Postma et al. (2024), emphasize that successful pharmaceutical policies must strategically balance access, affordability, and innovation. This integrative approach promises a sustainable pharmaceutical ecosystem that meets patient needs while fostering future medical breakthroughs.

References

Association for Accessible Medicines. (2024). PBM reform and patient access. https://accessiblemeds.org

Center for Strategic & International Studies. (2023). International drug pricing models: Implications for U.S. policy. https://www.csis.org

Gale A. If Pharmacy Benefit Managers Raise Drug Prices, Then Why Are They Needed? Mo Med. 2023 Jul-Aug;120(4):243-244. PMID: 37609464; PMCID: PMC10441264.

Information Technology and Innovation Foundation. (2023). The impact of price controls on global pharmaceutical R&D spending. https://itif.org

Kristi Martin, “What Pharmacy Benefit Managers Do, and How They Contribute to Drug Spending” (explainer), Commonwealth Fund, Mar. 17, 2025. https://doi.org/10.26099/fsgq-y980

Liang, W., Lu, Y., & Shi, L. (2023). Drug pricing reforms in China: Balancing affordability and innovation. Health Affairs, 42(4), 610–618. https://doi.org/10.1377/hlthaff.2022.01281

Postma, M. J., van der Wilt, G. J., & Jager, J. (2024). Pharmaceutical pricing and innovation: A cross-country comparison. Pharmacoeconomics, 42(2), 145–157. https://doi.org/10.1007/s40273-023-01311-y

Sarah K Emond, Catherine K Fischer, Institute for Clinical and Economic Review’s role in the U.S. health care system: Centering the patient perspective, Health Affairs Scholar, Volume 3, Issue 4, April 2025, qxaf071, https://doi.org/10.1093/haschl/qxaf071

Silber, B. M., Feldman, R., & McGuire, T. G. (2021). Lessons from the Orphan Drug Act: Implications for drug innovation policy. Brookings Institution. https://www.brookings.edu/research

The Health Foundation. (n.d.). Balancing access, affordability, and innovation in pharmaceutical policy. https://www.health.org.uk

Tsuji, K., Nomura, F., & Kamakura, H. (2022). Japanese pharmaceutical pricing system and its implications for innovation. Journal of Medical Economics, 25(3), 241–250. https://doi.org/10.1080/13696998.2022.2043301

Final Remarks  

A group of friends from “Organizational DNA Labs” (a private group) compiled references and notes from various theses, authors, media, and academics for this article and analysis. We also utilized AI platforms such as Gemini, Storm, Grok, Open-Source ChatGPT, and Grammarly as research assistants to save time and ensure our expressions' structural and logical coherence. Using these platforms, we aim to verify information from multiple sources and validate it through academic databases and equity firm analysts with whom we have collaborated. The references and notes in this work provide a comprehensive list of our sources. As a researcher and editor, I have taken great care to ensure that all sources are correctly cited and that the authors receive recognition for their contributions. The content is primarily based on our compilation, analysis, and synthesis of these sources. The summaries and inferences reflect our dedication and motivation to expand and share knowledge. While we have drawn from high-quality sources to inform our perspective, the conclusion represents our views and understanding of the topics covered, which evolve through ongoing learning and literature reviews in this business field.