Medicine Between the Market and the State: Who Determines Its Price?

When a U.S. state decides how much Medicaid will pay for a medicine, the decision does not necessarily remain within the American healthcare system. If the price begins to be compared with the price paid for the same medicine in other countries, national regulation takes on an international dimension. This raises questions that go beyond economics: can a state use prices from other legal systems as a benchmark, how far may it go in negotiations with the pharmaceutical industry, and where are the boundaries between the public interest, market freedom, and the right to healthcare?

In September 2026, it was announced that all 50 U.S. states would participate in a new Medicaid drug pricing model. According to the published information, the model links the prices paid by the U.S. public system to drug prices in certain international markets

The U.S. GENEROUS model uses negotiations between CMS and drug manufacturers, together with supplemental rebates, to bring Medicaid prices closer to certain international reference prices. The legal basis of the model is connected to the Social Security Act, which allows for the testing of new models of payment and healthcare delivery.

The U.S. example therefore raises a question that can be asked of almost every state: when does a state have the right to intervene in the price of a medicine that is produced and sold on a private market but paid for with public funds? The answer is not the same in Europe, Japan, India, or China. Each of these systems has developed its own combination of state regulation, negotiation, public procurement, and health insurance. Comparative analysis therefore shows that there is no single universal legal formula for determining the price of medicines.

The State as Buyer, Regulator, and Negotiator Autonomy as a Legal Standard

In the case of medicines, the state has an unusually complex role. It simultaneously protects public health, finances healthcare services, regulates the pharmaceutical market, and is often one of the largest purchasers of medicines.

In the United States, GENEROUS demonstrates how these functions can be combined within a single model. Rather than simply imposing a uniform maximum price, the public system uses its negotiating position and international price data. This approach also changes the legal nature of the issue. The question is not only whether the state may regulate prices. It is also whether a public purchaser may use its market power to demand more favorable terms from manufacturers.

In Europe, this issue is addressed through a different legal structure. EU Member States retain significant powers over the pricing of medicines and decisions concerning their financing through national health insurance systems. However, their actions are subject to European transparency requirements. Council Directive 89/105/EEC regulates the transparency of measures governing the pricing of medicinal products and their inclusion in national health insurance systems. The European approach therefore places particular emphasis on procedure. It is not sufficient for a state to make a decision on the price or reimbursement of a medicine. It also matters how that decision was reached, which criteria were applied, and whether the decision can be effectively reviewed.

Asia contains models that demonstrate even more clearly the different forms of state intervention.

Japan has closely linked drug pricing to its national health insurance system. Prices are determined through the National Health Insurance Drug Price List, with different calculation and comparison methods applied to new medicines.

India goes a step further toward direct control. The Drugs (Prices Control) Order 2013 represents one of the key regulatory instruments for controlling the prices of certain medicines, alongside the work of the National Pharmaceutical Pricing Authority.

China has developed a different approach. National Volume-Based Procurement is based not primarily on setting a maximum price, but on aggregating public demand. Manufacturers compete for large contracted volumes, with lower prices becoming a key element of competition. A recent study of the Chinese system found substantial reductions in costs for medicines that won procurement tenders, as well as significant estimated savings for the public system.

These three Asian examples therefore demonstrate three different ways of using public power: the state may establish rules for calculating prices, directly control certain prices, or use the scale of public procurement as a negotiating advantage.

Where Does the State’s Regulatory Freedom End?

The pricing of medicines is nevertheless not solely a national matter. Pharmaceutical products are often protected by patents, while the international intellectual property system establishes rules that states must take into account when regulating the availability and pricing of medicines.

At the same time, patent protection is not intended to prevent every public health measure. The 2001 Doha Declaration on the TRIPS Agreement and Public Health confirms the ability of WTO Members to implement TRIPS in a manner that supports the protection of public health and access to medicines. This means that international law does not impose a single method for determining drug prices. There is no universal obligation for states to adopt the American model of negotiation, the European system of transparency, the Japanese health insurance system, or the Chinese model of centralized procurement.

There is, however, a broader legal framework within which such policies must operate. This is where the distinction between regulating the price itself and regulating the process through which the price is determined becomes important. A state may have broad authority to intervene in public spending on medicines, but the manner in which that authority is exercised must be sufficiently clear and predictable.

In some systems, the emphasis is on transparency. In others, on public procurement. In others still, on direct price-setting or negotiation. What they have in common is that the price of a medicine is no longer determined exclusively by the relationship between the manufacturer and the patient. In modern healthcare systems, there is almost always a public institution between them that determines, finances, negotiates, or supervises the conditions under which a medicine reaches the patient.

Medicine as a Legal, Not Merely Market, Issue

The U.S. GENEROUS model should be viewed within this broader context. Its significance lies not only in its attempt to reduce drug prices. More important is the legal mechanism: international prices become one of the elements used to shape the price in another national system. This means that the boundaries between national healthcare policies begin to overlap.

A drug price determined in one system may become a reference point for a decision in another, even though the two systems differ in how healthcare is financed, how negotiations with manufacturers are conducted, and how prices are determined. This raises the question of how far a national pricing decision can affect conditions beyond its own market.

If one country pays significantly less for a particular medicine than another, that difference is no longer merely a statistical figure. It can become a regulatory argument, a negotiating tool, or the basis for a new public policy. If prices in one country begin to be used as a reference in another, the decision of one regulatory system may have consequences beyond its borders. Manufacturers must therefore take into account that a price agreed upon in one market may influence negotiations in other markets.

Not every drug price is necessarily directly comparable. Different countries apply different models of public procurement, reimbursement, and negotiation, while the final cost to a healthcare system may include rebates or other contractual elements that are not publicly visible. International price comparisons therefore also raise the question of which criteria should be used to determine whether two prices are sufficiently comparable for one to serve as a basis for the other.

Such an approach therefore changes not only the way in which a state negotiates the price of a medicine, but also the position of the pharmaceutical industry in that process. If a manufacturer knows that a price accepted in one country will be taken into account in another market, negotiations are no longer limited to the relationship with a single national healthcare system. A decision made within one legal system can thus become part of a broader international process of determining drug prices.

Future debates over drug prices will therefore likely concern not only how much an individual state is willing to spend on medicines. They will also concern whether one state may use a price from another legal system as the basis for its own decision, how the comparability of such prices should be assessed, and where the boundaries of such a regulatory approach lie.

Conclusion: Who Actually Determines the Price of a Medicine?

The way in which the price of a medicine is determined differs from one legal system to another. In some systems, the state is deeply involved through health insurance rules; in others, prices are directly regulated; and elsewhere, the outcome is shaped largely through negotiations with manufacturers. In other systems, the state uses its purchasing power and large procurement volumes as a basis for securing more favorable prices.

The U.S. GENEROUS model adds another dimension to this debate: international price comparisons as an element of a national system for publicly financing medicines. Comparative law therefore shows that the question is not only how much a medicine costs, but also how the legal system enables the state to influence that price.

The differences between the American, European, and Asian approaches demonstrate that there is no single universal model for determining drug prices. Different systems use different legal mechanisms, but they share an effort to find a balance between access to medicines, public expenditure, the interests of manufacturers, and the sustainability of the healthcare system. When the state, the pharmaceutical industry, public health insurance, international law, and the patient all meet in the process of determining a price, the price of a medicine ceases to be merely a market figure. It becomes the result of the rules under which a healthcare system decides how much it is prepared to pay for treatment and under what conditions.