If you watch television, you may have noticed a class of drug-related advertisements interspersed among the blizzard of geriatric pharmaceuticals that sponsor news and weather. The basic scenario involves a financially stressed customer (e.g., a harried young mother with a sick infant in her arms and a tired toddler in tow) standing in front of a pharmacy counter. Having just been presented with the bankrupting cost of a desperately needed medication (perhaps for her ill infant), she is on the verge of panic when another customer (or celebrity) waiting in line introduces her to the magic of a drug discount card (e.g., GoodRx, SingleCare). A few taps on her phone and the previously impassive, but now suddenly friendly pharmacist is complimenting the mother on finding a “good price.” Other versions of these drug discount card ads stress the mind-blowing fact that the price for the same drug may differ as much as 10-fold between two pharmacies – or even within the same pharmacy depending on the patient’s health insurance.

In general, Americans are well aware that their prescription medications cost at least twice what they typically cost in Western Europe and Canada. They are also aware that prices for the same medication vary dramatically across pharmacies. What is more difficult to understand is why this is so.

A number of reasons are typically offered as to why medications are so much more expensive in the U.S. including: 1) no central negotiating authority but rather hundreds of state and commercial health insurance plans each with little individual bargaining power; 2) there are no price controls; 3) there are systemic incentives for physicians to prescribe higher-priced medications; 4) loopholes in the drug patent system are........

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