The United States pays more for prescription drugs than any other country. That is not a function of better drugs or better care. It is a result of a deliberately engineered system that protects monopolies, encourages price discrimination, and stifles competition from the very products that could save the system billions: biosimilars.
Pharmaceutical companies insist that high prices are necessary to fund innovation. That argument, while partially true, is also highly selective. It ignores how these same firms use legal maneuvering, strategic pricing, and regulatory friction to block lower-cost competitors. In economic terms, they are maximizing rent, not value.
Let’s start with the basics. When a new drug enters the market, it enjoys a period of exclusivity granted through patents and FDA approvals. That window, typically 12 to 17 years for small-molecule drugs and often longer for biologics, allows the manufacturer to charge whatever the market will bear. There is no meaningful competition during this period, which is exactly the point. Companies use this time to recoup R&D costs and maximize profits.
But here is the rub: the United States also allows pharmaceutical companies to engage in aggressive price discrimination. That means drugmakers charge different prices to different customers based on their ability or willingness to pay. U.S. patients, especially those with insurance, end up footing a disproportionate share of global pharmaceutical revenues.
Not All Lower-Cost Drugs Are Alike Once a drug’s exclusivity expires, lower-cost alternatives can enter the market. These fall into two main categories: generics and biosimilars.
Generics are exact chemical copies of brand-name drugs. They are used for small-molecule medications, things like blood pressure pills, cholesterol drugs, or antibiotics. Because their chemical structure is straightforward, generics are relatively easy and inexpensive to produce. The FDA requires that generics demonstrate bioequivalence, meaning they work the same way in the body as the original drug. Once approved, pharmacists can substitute generics without asking the prescribing doctor. This has made them the backbone of drug cost savings in the U.S. Today, generics account for 90 percent of all prescriptions filled.
Biosimilars, by contrast, are modeled after biologic drugs, large, complex molecules made from living organisms. These include treatments for cancer, autoimmune disorders, and other chronic conditions. Biosimilars cannot be exact copies because the underlying manufacturing process involves living cells. Instead, they must prove they are “highly similar” to the original product, with no clinically meaningful differences in safety, purity, or effectiveness. The FDA has a special “interchangeable” designation for biosimilars that meet even higher standards, allowing for pharmacy-level substitution. As of 2023, only four biosimilars had earned that distinction.
So while both generics and biosimilars reduce prices through competition, they face very different scientific, legal, and regulatory pathways. That complexity helps explain why biosimilars have not yet delivered the same sweeping cost reductions as generics.
And that brings us to the biosimilar void. Between 2025 and 2034, 118 biologic drugs will lose patent protection. That is a $232 billion opportunity to reduce costs. But as of mid-2024, only 12 of those drugs have biosimilars in development. That means 90 percent of the potential savings pipeline is dry.
And it is not just about economics. Some of the most lucrative biologics nearing patent expiration have no biosimilars in development. That tells us the barriers are structural. Manufacturing complexity, uncertain market size, and legal threats discourage companies from entering the race.
One powerful actor in this equation is the PBM. Pharmacy Benefit Managers are third-party administrators that manage prescription drug benefits on behalf of health insurers, Medicare Part D plans, and large employers. They decide which drugs get placed on a health plan’s formulary, negotiate prices with manufacturers, and determine how much pharmacies get reimbursed.
PBMs profit from rebate structures. Manufacturers often inflate the list price of a drug to offer a larger rebate, which PBMs can retain a portion of. This creates a perverse incentive. A biosimilar may offer a lower price, but a brand-name drug with a bigger rebate might be more attractive to the PBM. That means a lower-cost drug could get blocked in favor of one that costs more overall.
Some biosimilar makers have responded by launching both branded and unbranded versions of the same drug at different price points. For example, Amgen released two versions of Amjevita, a biosimilar to adalimumab (used to treat Moderate to Severe Rheumatoid Arthritis), to satisfy both patients seeking affordability and PBMs seeking higher rebates.
Most policy proposals fall short. Congress and federal agencies have explored a range of ideas to lower drug prices: importation, inflation rebates, advertising restrictions, and earlier generic entry. But according to the Congressional Budget Office, none of these moves, except for international reference pricing, is expected to reduce prices by more than 5 percent. Most changes would lower prices by less than 1 percent.
To be clear, even small reductions matter. A 1 percent drop in drug prices can translate into billions in annual savings. But relying on modest, incremental reforms while ignoring the structural bottlenecks to biosimilar adoption is a lost opportunity.
Here is what needs to change. The legal landscape must become less hostile to biosimilar challengers. That means reforming the patent system to prevent abuse, streamlining the FDA approval pathway, and providing clearer rules for interchangeability.
Payers and policymakers must realign incentives. PBMs should be rewarded for choosing lower-cost alternatives, not for extracting rebates. Physicians and patients need better education on the safety and efficacy of biosimilars. Biosimilar makers should be supported in building manufacturing capacity for complex products, not punished for entering a defensive market.
The United States must also recognize its own market power. By demanding affordability, transparency, and fair competition, it can reset global norms for drug pricing. Without meaningful reform, the burden will continue to fall hardest on American patients, many of whom are already rationing medications or skipping doses to save money.
Biosimilars are not a silver bullet, but they are a proven tool. What is missing is not proof of concept. What is missing is the political will to unlock their full potential. A $232 billion savings opportunity is sitting on the table. The question is whether we will seize it or let it expire along with the patents.