Agree with some of your points but you are missing something essential here.

You don't pay for the cost of the ingredients in pharmaceutical products (otherwise the cost of most drugs would be 1/10th of what they are or even less), but for the IP behind it. You need clinical trials to demonstrate that something works for a specific condition, and this is what gets an approved stamp by the FDA and integration with the reimbursement system, along with a negotiation on pricing.

If there were no such incentives, then nobody would do any kind of clinical trial for compounds that are already widely available in OTC form, and the only thing you would have is anecdotal evidence (i.e. noise) to know what works or not.

Whether this is the right way to incentivize research and development is a valid topic to discuss, however.