Price comparisons are easy for most goods and services, but not prescription drugs. A patient may not know whether the best price is at a local pharmacy, an online pharmacy, a mail-order service, or a manufacturer’s direct-purchase program until after the prescription has been filled and paid for. Most patients simply default to their insurance co-pay assuming it is the lowest. By then, the most basic part of a market economy, prices, has been forced out of consumer decisions.
Too often, policymakers respond to high drug prices with the wrong tools. Price controls and reference pricing schemes may create the appearance of action, but they do not fix the market’s underlying problems. They do not help enable prices to serve as competitive pressure through patient price comparison, facilitate cash-pay alternatives or give patients more control over buying medicine. Real reform means letting patients see competing prices before they buy.
Direct-to-consumer (DTC) pharmaceutical sales are one of the clearest ways to create price competition. On a DTC platform, patients can see a cash price before buying and compare it against other options. That choice matters because it turns insurers from gatekeepers into competitors: if coverage is not the lowest-cost option, patients should be free to take their prescription business elsewhere.
But DTC is still constrained by federal and state regulations. On the federal side, the largest barrier is the Medicaid “best price” rule, which generally requires pharmaceutical companies to give Medicaid the lowest price they offer elsewhere. This creates a problem for manufacturers. When they lower prices to match market demand, that discount is automatically applied to Medicaid.
This wouldn’t necessarily be a problem except for Medicaid’s inflation rebate limits the ability to raise Medicaid’s price over time when market conditions change. This limit requires that all increases in price for drugs sold to Medicaid cannot increase faster than inflation. Once the price is set, it is effectively set permanently. With 67 million Americans on Medicaid, manufacturers have to be careful about offering private cash discounts that could trigger broader and longer-term consequences.
DTC pharmacies also face fragmented state licensing rules. Lawful sellers must navigate state-by-state nonresident pharmacy licensing requirements before serving patients across state lines. California, for example, requires any nonresident pharmacy that ships, mails, or delivers prescription medications to California residents to hold both a valid license in its home state and a California nonresident pharmacy license.
An interstate pharmacy may need to comply with the strictest rules among the states it services unless it maintains separate facilities or workflows for those jurisdictions. Staffing rules show the problem. A DTC pharmacy operating between two states with a looser pharmacist-to-technician ratio, such as Florida and Texas, may still need to satisfy California’s requirement of one pharmacist to every three technicians for that transaction if it wants to remain licensed in California. The result is not a national market, but 50 overlapping compliance regimes.
States even make it harder for insurers to work DTC medicines into coverage without triggering anti-kickback concerns. If an insurer gives preferential treatment to a manufacturer’s DTC program, such as offering member incentives to purchase DTC medicines, some states may treat the arrangement as a kickback payment, assuming the deal benefits the insurer instead of being in the patient’s best interest.
Unlike the federal Anti-Kickback Statute, which is focused on federal health care programs, some state laws include commercial insurance and private-pay arrangements. Massachusetts, for example, prohibits payment tied to purchasing, ordering, arranging for, or recommending goods or services payable by a health care insurer. That uncertainty can make insurers reluctant to promote lower manufacturer-direct prices even when patients would save money. The law should distinguish between corrupt referral payments and transparent arrangements that let insurers show patients a lower lawful price.
Lower drug prices will not come from Washington deciding what every medicine should cost. They will come from letting patients see prices, compare sellers, and use lower-cost options when they exist. Congress should reform Medicaid best price rules so manufacturers can offer private cash discounts without triggering severe rebate consequences. States should streamline nonresident pharmacy licensing, modernize staffing rules, and clarify that insurers may direct patients to lawful lower-cost DTC options without worrying they will be treated as if they are paying for improper referrals. Patients do not need another layer of political price-setting. They need a market they can actually use. That starts with a simple principle: show the prices and make every seller compete for the patient’s business.
Justin Leventhal is a Senior Policy Analyst for the American Consumer Institute, a nonprofit education and research organization that advocates for consumers through evidence-based analysis and data. Follow Justin on X @JustinLeventhal.