Here is a reply I gave to a WaPo article about drug pricing:

That is where the "maximum of 120% of the average price of the drug in 6 other rich countries (which all do government price setting)" comes into play. It is true, if the government can't just say "no" and has to cover the drug, then there is no incentive for a drug company to compromise on price (i.e. a true negotiation implies you can just walk away and say no). So the 120% maximum price is the stick that is being proposed instead, but it is essentially government price setting as the price can go no higher than that.

It is true that Americans are getting a raw deal on drug prices compared to other countries, but that overspending by Americans is basically what is fueling drug innovation. Basically the drug companies accept a low reimbursement rate from other countries (closer to marginal cost) because they know they can make it up with the high prices in the US. The other countries with much lower prices are not really paying a fair share, what really needs to happen to make the system fair is for US prices to decrease some and other countries' prices to rise some, to a fair medium price; but the other countries won't agree to that easily.  So while Americans are justifiably outraged at how much more they have to spend on drugs compared to other countries, that doesn't imply a fair price is for Americans to pay the same artificially low price that the other countries have.

If you want to better understand the drug price issue, the WaPo columnist Megan Mcardle has written some good columns through the years, e.g.:

https://www.washingtonpost.com/opinions/theres-a-high-cost-to-making-drugs-more-affordable-for-americans/2019/05/07/0a36ceba-7044-11e9-9f06-5fc2ee80027a_story.html

https://www.thinkadvisor.com/2015/09/11/view-the-danger-of-trying-to-manage-u-s-drug-prices-2/

Basically, it boils down to being an investment decision. If you want new drugs discovered, someone has to pay for risky and expensive research to do that (and yes, while the NIH does pay for basic research, the drug companies spend much much more, the massive clinical trials required to get a drug approved are very expensive and often end in complete failure, so the price you pay for a drug is actually subsidizing all those failures too). Because drug discovery is so risky and prone to failure, investors will naturally demand a very high profit margin in order to make such investments. Although a bit extreme, a simple example illustrates the point. Say drug company profits are the highest of any industry but the government mandated prices lower their profits to close to nothing, say 1.3%. Now, with your own money would you be interested in investing in a risky drug company where your maximum profit is 1.35%? Of course not, if you're happy to receive 1.35% just invest your money in a risk-free 10 year treasury bond and be done with it! And of course all investors would behave this way and there would be no more investments in drug companies, and consequently no more drugs (unless the government steps in to fully do drug discovery, which is a possibility as it could do it like defense contracting, e.g. see papers by the economist Dean Baker).