Drug Price Transparency: A Necessary Step, But Not a Cure-All
Despite growing calls for greater openness, simply revealing how drug prices are set won’t solve America’s affordability crisis without broader systemic reforms.
For years, policymakers and patient advocates have championed drug price transparency as a key solution to lower healthcare costs and improve equity. While increased visibility into the pharmaceutical supply chain is a crucial first step toward accountability and informed budgeting, experts caution that transparency alone is insufficient to guarantee affordable access to life-saving medications.
The Promise of Transparency
Drug price transparency aims to illuminate the complex journey of a medicine’s cost, from its initial manufacture to its final dispensing at the pharmacy. This increased clarity can help pinpoint areas where costs can be reduced or better regulated. By making this information public, transparency empowers patients, healthcare payers, and policymakers to make more informed decisions and potentially encourage manufacturers to adopt fairer pricing practices. Ultimately, the goal is a more equitable system where individuals can readily afford and obtain the treatments they need, thereby improving overall access to care.
A Patchwork of State Laws
While comprehensive federal policy remains elusive, individual states have begun to enact their own drug transparency laws. Vermont led the way in 2016, and since then, at least 14 states have followed suit, though the specifics and enforcement of these laws vary considerably.
Notably, Vermont and Maine require pharmaceutical companies and insurers to disclose the “net price” – the actual price paid after discounts. Conversely, Oregon and Nevada mandate that drug manufacturers publicly report their profits to state agencies. Connecticut, Louisiana, and Nevada require pharmacy benefit managers (PBMs) to report total rebates received, but not the individual amounts for each drug. Despite these efforts, a complete, end-to-end transparent view of the drug supply chain remains unrealized in any state.
The Limits of Visibility
Even with increased price clarity, Americans continue to pay approximately 2.6 times more for prescription drugs than their counterparts in other wealthy nations. Early evidence suggests that state-level transparency laws have had limited success in curbing these high costs. To date, analyses of these laws from California, Maine, Minnesota, and Oregon share common concerns: difficulties in tracking pricing across the entire supply chain and uncertainty regarding the authority of state agencies to act on incomplete or unreliable data.
Many existing laws focus on broad price trends rather than detailed cost or profit data, making it challenging to identify the specific drivers of high drug prices. Even when transparency discourages price increases, it doesn’t directly control pricing or define what constitutes an “unjustified” increase. Manufacturers can circumvent these measures by setting higher initial launch prices or implementing smaller, more frequent increases to remain below reporting thresholds. As a result, the cost of the same 30-day prescription can still vary by as much as $719, even with publicly listed prices.
Beyond Transparency: Addressing Root Causes
A consistent national framework could replace the current fragmented state-level approach and improve oversight of drug pricing. The Drug Price Transparency in Medicaid Act (H.R. 2450), for example, proposes to standardize reporting requirements and reveal how drug prices are established, rebated, and reimbursed. However, as one analyst noted, “transparency alone can’t lower costs—it only shows the problem.”
To truly make transparency meaningful, policymakers must address the underlying contracts and incentives that fuel high prices. Hidden rebate deals and opaque pricing structures between PBMs and drugmakers often inflate costs and prevent patients from realizing potential savings. Pairing transparency legislation with value-based pricing, which links payments to clinical benefits, could offer a more effective solution. While federal programs like the Medicare Drug Negotiation Program provide some leverage, broader reforms are needed to extend these benefits to the commercial market, where most Americans obtain their prescriptions and continue to face high costs.
Furthermore, transparency carries potential downsides. Fully public drug prices could incentivize companies to discontinue offering lower prices in low- and middle-income countries. To avoid cross-country comparisons, they might raise prices globally, making medicines less affordable where they are most needed. Policymakers should therefore combine disclosure with protections that preserve affordability worldwide.
A Necessary, But Incomplete, Solution
In conclusion, drug price transparency is a necessary but incomplete fix for America’s complex drug pricing system. Simply shining a light on how prices are set is not enough. Policymakers must pair transparency initiatives with other reforms, such as removing incentives for high prices, holding PBMs and manufacturers accountable, extending negotiating power beyond Medicare, and protecting prescription drug access both domestically and internationally. Without these complementary steps, transparency laws risk merely highlighting unfairness without actually improving it.
PhiYen Nguyen, MPP, and Kristina Smith, MSW are both senior policy analysts at the Partnered Evidence-based Policy Resource Center, a partnership with Boston University School of Public Health. (Kristina’s last name was Carvalho in her previous THCB appearance)
