Introduction

For pharmaceutical executives steering pricing and strategy, understanding global drug price gaps is critical, especially as policies like the Most-Favored-Nation (MFN) pricing order (May 2025) loom. A 2024 RAND study reports U.S. prescription drug prices are 278% of those in 33 OECD countries, with brand-name drugs like Keytruda at 422%. While this data fuels policy debates, it compares apples to oranges by overlooking key pricing drivers. This review highlights the study’s value and limitations, proposes a more robust drug pricing analysis, and uses Keytruda to show why context matters for strategic pricing.

The RAND Study: A Policy Snapshot

The RAND study, using 2022 IQVIA data, confirms U.S. drug prices far exceed OECD peers’. Overall, U.S. prices are 2.8 times higher, driven by brand-name drugs (4.2 times higher), while generics (90% of U.S. prescriptions) are lower at 67% of OECD prices. Even after a 37.2% rebate adjustment, brand-name prices remain 3.1 times higher. These findings, consistent with 2018 data (250% overall gap), underscore why policies like MFN and Medicare negotiation (Inflation Reduction Act, 2022) target brand-name costs.

The study’s strength lies in its clear, policy-focused snapshot, using a large dataset (4,690 drug presentations) to compare prices across countries like Canada (44% of U.S. prices) and France (~25%). Its descriptive approach—comparing gross prices weighted by U.S. volume—aims to inform discourse, not explain causes. For executives, it signals intensifying scrutiny on brand-name pricing, especially for U.S.-based firms like Merck or Pfizer, which dominate these drugs.

Limitations: Apples to Oranges

While valuable, the study overreaches by presenting unadjusted price gaps as definitive. It’s not comparing apples to apples due to unaddressed factors:

• Gross vs. Net Prices: The study uses list prices, not what payers actually pay after rebates. The 37.2% U.S. rebate estimate is a rough average, ignoring variations (e.g., insulin vs. oncology drugs). OECD countries’ confidential discounts are unadjusted, likely understating the gap.
• Regulatory Differences: France and Japan’s low prices reflect strict government controls, unlike the U.S.’s market-driven system. Patent protections also last longer in the U.S., delaying cheaper generics. But note that generics in the U.S. are significantly lower – benefiting U.S. patients.
• Market Dynamics: U.S. payers, fragmented across insurers and PBMs, have less bargaining power than single-payer systems like Canada’s. The U.S.’s wealth and demand for new drugs enable higher prices.
• Systemic Factors: The U.S.’s high healthcare costs (e.g., litigation, administration) could inflate prices, unlike in OECD peers.
• Data Gaps: Only overlapping drugs are compared (e.g., 17% of U.S.-Japan volume), skewing results for unique drugs like biologics.

These gaps mean the 422% brand-name figure, while striking, oversimplifies reality. Policies like MFN, aiming to cap prices at France’s level, may misfire without this context, risking profits or access.

A Better Approach: The Case for Robust Drug Pricing Analysis

To guide pricing strategy, we need a deeper analysis at the payer level—what insurers and patients actually pay after discounts. This should control for:

• Regulatory Factors: Price controls, patent durations, and approval speeds (U.S. drugs launch 6–12 months faster than in Europe).
• Market Factors: Payer power, generic use (90% U.S. vs. 41% OECD), and consumer wealth.
• Systemic Factors: Rebates, R&D recovery, and system costs.
• Time/Context: Market entry timing, and drug overlap.

Such robust drug pricing analysis, unlike RAND’s snapshot, would quantify how much each factor drives the gap, helping executives model MFN’s impact, optimize rebates, or prioritize markets. For example, if regulation explains 50% of the gap, aligning prices in France-like markets could mitigate policy risks.

Case Study: Keytruda’s Pricing Puzzle

Consider Keytruda (pembrolizumab), Merck’s blockbuster oncology drug. In 2022, its U.S. list price was ~$10,000 per month, compared to ~$2,500 in France—a gap aligning with RAND’s 422%. But this comparison misses the full story:

• Faster U.S. Access: The FDA approved Keytruda in 2014, 6–12 months ahead of Europe, allowing Merck to set premium prices during exclusivity. U.S. patients gained early access, but payers faced high costs.
• Rebate Dynamics: U.S. payers negotiate hefty discounts (30–50% for oncology drugs, per IQVIA 2023), narrowing the net price gap. France’s government caps prices upfront, with minimal rebates.
• Market Power: The U.S.’s fragmented payers compete, weakening leverage against Keytruda’s monopoly (no biosimilar until 2028). France’s single-payer system demands lower prices.
• R&D Narrative: Merck, a U.S. firm, argues Keytruda’s $1 billion+ development cost justifies U.S. premiums, as global profits (70% from U.S.) fund innovation.

A robust analysis would reveal how much of Keytruda’s gap stems from regulation (e.g., France’s caps) vs. patents (U.S. exclusivity) or rebates. For executives, this guides strategies: maximize U.S. launch prices, negotiate flexible rebates, and prepare for MFN by aligning global prices cautiously to avoid low-margin market exits.

Conclusion: Strategic Pricing Clarity Ahead

The RAND study is a wake-up call for pharma executives: U.S. brand-name prices, 4.2 times OECD peers’, harm reputation and drive policies like MFN and IRA negotiations. But its unadjusted comparisons oversimplify, risking misguided reforms. A robust drug pricing analysis, accounting for regulation, markets, systems, and time, would better equip leaders to navigate pricing pressures. For drugs like Keytruda, context—faster approvals, rebates, R&D—matters as much as list prices.

Accelerating access to prescription drugs depend on finding a sustainable equilibrium between price, patient volume, and payer budgets. Deeper analysis could help reveal which levers—such as rebate strategies, launch timing, or value-based contracting—facilitate this balance in different market contexts. In free-market environments, these levers can often be adapted dynamically to achieve alignment, whereas rigid pricing policies like MFN may limit that flexibility.

Exploring these dynamics could offer a more constructive path forward, enabling companies to better model pricing strategies, assess policy risk, and engage with regulators from a position of informed adaptability. In a policy-driven era, can pharma turn scrutiny into strategic opportunity?