Rethinking drug price strategies: lessons for Kazakhstan

Americans pay twice as much for medicines as Europeans. The U.S. accounts for about 40% of global pharmaceutical spending, making it the largest and most profitable market for drugmakers. Yet it is also the most expensive for patients. Every new administration promises to ease this burden, but results have been limited. One of the most discussed ideas is international reference pricing – a system where U.S. drug prices are capped at the level of other countries.

At first glance, the concept makes sense. If a new cancer drug costs less in Canada or Germany, why should Americans pay more? In 2019 and 2021, Congress debated bills that would limit U.S. drug prices to no more than 120% of the average in several developed countries. Politically, it sounded appealing: “If our neighbors pay less, why can’t we?”

But reality is different. Research based on IMS Health data from 2002–2013 shows that international reference pricing does not lead to sharp price cuts in the U.S. Instead, it pressures partner countries. Drugmakers, aware that low Canadian prices could drag down their U.S. profits, push Canada and Europe to raise prices. The result: U.S. prices fall only slightly, while prices abroad rise significantly.

Developing new drugs is risky and costly. Most projects fail, so the few that succeed must cover billions in sunk costs. In the U.S., the patent system allows companies to freely set high prices to recoup investments. Other countries regulate prices through negotiation.

In Canada, for example, the government bargains on behalf of the health system. The process is like a balance: the company protects its profit, while the state insists on affordability. The outcome is far lower prices than in the U.S.

Comparisons confirm the gap. Almost all drugs are more expensive in the U.S. Even generics, which should be cheap due to competition, cost more. For innovative drugs the difference is extreme. When Gilead launched Sovaldi, a treatment for hepatitis C, it sold for $1,000 per pill in the U.S. In India, the same pill cost 100 times less. In Canada, regulators negotiated a discount of more than 40%.

Canadian patients and hospitals are also more price-sensitive. Demand reacts strongly to cost changes. In the U.S., consumption continues even when prices climb, giving companies room to keep margins high.

Researchers built a structural model of supply and demand, using data from the U.S., Canada, and several European countries. The results were clear.

If the U.S. pegs prices only to Canada, American prices fall slightly while Canadian prices rise sharply. If prices are tied to an average across six countries, the U.S. benefits more, but pressure on Europe intensifies. Adding a 20% markup softens the blow abroad, but also reduces U.S. savings. The strictest option – requiring mandatory sales in reference countries – cuts U.S. prices more, but multiplies risks for other markets.

The paradox: global drug company profits may actually grow. What they lose in the U.S. gets offset by higher revenues in Canada and Europe.

In Canada, bargaining power for companies varies widely. For innovative drugs, it ranges from 0.34 to 0.91, meaning firms retain influence but not full control. For generics, bargaining power is close to zero, so prices hover near production costs. In the U.S., by contrast, there is no real negotiation – firms set prices freely.

This shows the trade-off. Where prices are regulated, drugs are cheaper, but new treatments may be delayed. Companies may hold back launches in Canada if they fear low local prices will undercut U.S. profits.

The main takeaway is that international reference pricing doesn’t fix the U.S. problem. It only partly lowers prices at home while pushing costs onto partner countries. American patients gain little. The global market faces higher tensions. The only sustainable way for the U.S. to lower spending is direct negotiations with manufacturers. That puts the focus on American patients, not on forcing Canada or Germany to pay more.

Kazakhstan is in a very different position. Its market is small, domestic production limited, and dependence on imports high. That means global reforms hit hard here. If the U.S. introduces reference pricing, drugmakers will become even more cautious about small markets like Kazakhstan. For us, that could mean delayed access to innovative medicines and higher prices.

Kazakhstan already regulates drug costs. The state distributor “SK-Pharmacy” handles centralized procurement, and maximum retail prices are capped. This is somewhat similar to the Canadian model. But Kazakhstan’s bargaining power is weaker. For global firms, our market is not strategic, so they can push harder.

For Kazakhstan, three steps are key. First, expand local production to reduce dependence on imports. Second, negotiate smartly by using regional partnerships to strengthen leverage. Third, keep price caps flexible enough to balance budget needs with supplier incentives – otherwise drugs may simply not reach the market.

Pharma is a global business with local consequences. The U.S. wants to cut costs. Europe fights for affordability. Companies defend profits. Every rule change in America ripples through Canada, France, and Japan. For Kazakhstan, the message is clear: we can’t rely on others’ policies. We need our own strategy – building production, strengthening bargaining positions, and protecting patients.

International reference pricing may sound like a neat political slogan. In reality, it barely reduces U.S. prices and creates problems abroad. For Kazakhstan, the lesson is direct: don’t depend on global fixes. Rely on domestic industry, smart policy, and balanced negotiations. That is the real solution.