It’s a common surprise for Americans traveling in Europe: they walk into a pharmacy and find that a generic pill they get for $4 at Walmart costs €15 across the border. Meanwhile, Europeans are stunned when they hear how much Americans pay for brand-name drugs like Jardiance or Stelara. The truth is, the US doesn’t pay more for generic drugs - it pays less. And that’s not an accident. It’s the result of how the system is built.

How the US Keeps Generic Drug Prices Low

In the United States, 90% of all prescriptions filled are for generic drugs. That’s not because doctors prefer them - it’s because the market forces them down. Generics in the US face fierce competition. Dozens of manufacturers can produce the same drug once the patent expires. Companies like Teva, Mylan, and Sandoz compete on price, often selling at or below manufacturing cost just to keep their factories running. This race to the bottom drives prices down - sometimes so low that suppliers quit the market entirely. That’s when shortages happen. But when new players enter, prices drop again.

Pharmacy Benefit Managers (PBMs) play a big role too. These middlemen negotiate rebates with drugmakers on behalf of insurers. For generics, they don’t need big rebates because the list prices are already low. Instead, they push for volume discounts. Big pharmacy chains like CVS and Walgreens buy in bulk, and they pass those savings directly to patients. Many Medicare Part D plans charge $0 to $10 a month for generics. At Walmart, you can get a 30-day supply of generic lisinopril for $4. In many European countries, that same pill might cost you €10 to €15.

Why European Generic Prices Are Higher

Europe doesn’t have the same level of competition. Only about 41% of prescriptions in the EU are for unbranded generics - less than half the US rate. Why? Because the system doesn’t encourage it.

Most European countries use centralized price controls. Governments negotiate drug prices directly with manufacturers. They don’t just look at what it costs to make the drug - they look at how much value it adds. If a drug isn’t seen as significantly better than existing options, the price gets capped. But here’s the catch: there aren’t enough generic makers pushing to enter the market. Regulatory hurdles, slow approval processes, and limited incentives mean fewer companies compete. Without competition, prices stay higher.

Countries like France and Germany use reference pricing - setting a drug’s price based on what other countries pay. But because those countries also have high prices for generics, the reference point stays elevated. In contrast, the US doesn’t have a single price setter. There are hundreds of insurers, PBMs, and pharmacies, each negotiating independently. That chaos creates competition - and lower prices.

The Brand-Name Paradox

Here’s where things get confusing. While Americans pay less for generics, they pay way more for brand-name drugs. The US spends 4.2 times more on brand-name medications than most OECD countries. Why? Because the US is effectively subsidizing global drug innovation.

Drug companies spend billions developing new medicines. In Europe, governments won’t pay high prices unless the drug delivers major clinical benefits. In the US, prices are set by the market - and patients, insurers, and PBMs often pay whatever the company asks. That means US sales fund about two-thirds of all global pharmaceutical research. A 2024 Milbank Quarterly analysis showed that if the US suddenly matched European prices, drugmakers would lose $100 billion a year in revenue. That money doesn’t just vanish - it’s the fuel for new cancer drugs, diabetes treatments, and Alzheimer’s therapies.

The Inflation Reduction Act is starting to change this. Medicare is now negotiating prices for 10 high-cost brand-name drugs. For Jardiance, Medicare paid $204 - still 3.9 times higher than the average in other countries. For Stelara, it was $4,490 versus $2,822 abroad. So even with negotiation, US prices remain far above global averages. But it’s a start.

European woman shocked by €15 price tag for the same generic pill.

Why Generic Substitution Works Better in the US

In 49 US states, pharmacists can automatically swap a brand-name drug for its generic version unless the doctor says no. This isn’t just convenience - it’s policy. It keeps costs down and ensures patients get the cheapest effective option.

In Europe, it’s different. In Germany, pharmacists can substitute generics. In France, they can’t - the doctor has to approve every switch. In the UK, substitution is allowed but rarely used because doctors often prescribe by brand. This lack of automatic substitution means patients keep paying higher prices longer. Even when generics are available, they’re not always the default choice.

What This Means for Patients

If you’re an American on Medicare or a private plan, you’re likely paying next to nothing for most generics. If you’re in France or the UK, you might pay a fixed co-pay - say €5 or £8 - no matter if the drug costs $2 or $20. That co-pay doesn’t change based on market competition. So even if the drug’s price drops, your out-of-pocket cost stays the same.

But here’s the hidden cost: the US system can be unstable. When prices drop too low, manufacturers exit. Then, when only one company is left, they raise prices. That’s what happened with the antibiotic doxycycline and the heart drug digoxin. Shortages followed. Europe avoids this because prices are set higher from the start - but patients pay more, even for old, safe drugs.

Split scene: chaotic U.S. generic drug competition vs. calm European price control.

The Global Impact

The US accounts for 40% of global pharmaceutical sales - but only 4% of the world’s population. That means a tiny slice of the planet is carrying most of the R&D burden. The European Commission estimates that US pricing supports $150 billion in annual global drug research. That’s why new drugs usually launch in the US first. If the US suddenly capped all drug prices - including generics - manufacturers might stop investing here. And that could mean fewer new drugs for everyone.

Some policymakers are trying to fix this. Former President Trump’s proposed “most favored nation” rule would have forced the US to pay the lowest price any developed country pays. But experts warn: if the US pays less, other countries will have to pay more to keep innovation going. It’s a zero-sum game.

What’s Next?

The gap between US and European drug prices isn’t going away - but it’s shifting. The Medicare negotiation program will slowly bring down brand-name prices. But generics? They’ll likely stay cheaper in the US. Why? Because the system is built for competition, not control.

Europe might eventually loosen its price controls to keep access to new drugs. The US might tighten its rules to prevent shortages. But the core difference remains: the US lets the market decide. Europe lets the government decide.

For now, if you need a generic pill, the US still wins on price. But if you need a new, life-saving drug, the system that lets companies charge high prices - even if it’s unfair - is the one keeping the pipeline full.

Why are generic drugs cheaper in the US than in Europe?

Generic drugs are cheaper in the US because of intense competition among manufacturers, volume purchasing by large pharmacy chains, and the role of Pharmacy Benefit Managers (PBMs) who drive down prices through discounts. The US has 90% generic use, which creates massive scale. In Europe, government price controls and fewer competitors mean less downward pressure on prices.

Do Americans pay more for all drugs?

No - only for brand-name drugs. Americans pay significantly less for generics, often $0-$10 per month with insurance. But for brand-name drugs like Jardiance or Stelara, US prices are 2-4 times higher than in Europe. This is because the US market allows drugmakers to set high prices, which fund global research.

Why don’t European countries just lower generic prices like the US?

European countries prioritize stable pricing and predictable budgets over market competition. Their systems use centralized negotiations and reference pricing, which set prices based on what other countries pay - not how many companies are competing. This avoids shortages but keeps prices higher. Introducing US-style competition would require major regulatory changes.

Are US generic drug shortages a sign the system is broken?

Shortages happen because prices drop so low that manufacturers stop making the drug - sometimes because profit margins are below production cost. When only one company remains, they can raise prices. It’s a flaw in the system: too much competition can lead to too little supply. Europe avoids this by setting minimum prices, but patients pay more.

Will Medicare drug negotiations make generic drugs more expensive?

No. Medicare negotiations only apply to brand-name drugs selected under the Inflation Reduction Act. Generics are already low-cost and not part of the negotiation process. The goal is to reduce high-cost brand-name prices, not to affect the generic market.

Can Europe’s system work in the US?

It’s unlikely. The US system relies on private insurers, PBMs, and pharmacy chains competing to offer the lowest prices. Europe’s model depends on government control and limited competition. Switching would require dismantling decades of infrastructure. Plus, Americans expect low generic prices - they wouldn’t accept paying €15 for a pill they now get for $4.