Just before the inauguration, the outgoing Biden administration announced 15 new medications that’ll be subject to government price negotiations under the Inflation Reduction Act. The new prices, which only apply to Medicare, will officially take effect in 2027.
Many will celebrate this government pricing as a win for affordable healthcare, but the reality is far more complex. In fact, for the tens of millions of Americans managing chronic conditions, government price-setting could end up making it harder to access life-saving treatments.
The fundamental driver of America’s healthcare affordability crisis isn’t drug prices themselves — it’s the complex system of rebates, discounts, and market distortions created by insurance companies and middlemen called pharmacy benefit managers. These entities act as gatekeepers between drug manufacturers and patients. Insurers and PBMs negotiate steep discounts for themselves while saddling everyday people with exorbitant out-of-pocket costs.
Just last month, the Federal Trade Commission revealed that three major PBMs marked up drug prices by hundreds or thousands of percent at their affiliated pharmacies, generating $7.3 billion in revenue above the drugs’ acquisition costs.
Government pricing will further encourage insurance companies to push patients toward the cheapest medicines, regardless of what their doctor might have prescribed. When Medicare artificially lowers the price for one drug — say, a breast cancer treatment — it creates a ripple effect across the market for all similar medicines. While insurers must cover the negotiated drug, they can use bureaucratic rules to push patients toward whichever option brings them the highest profits, whether that’s the negotiated drug or alternatives with bigger rebates.
These aren’t just hypothetical concerns. Medicare itself has acknowledged that insurers will likely respond to these prices by requiring more paperwork before covering some medications, forcing patients to try cheaper options first, or imposing strict quantity limits. Put simply: Medicare drug price negotiations could lead to more red tape between patients and the treatments they need.
The IRA compounds these challenges with a puzzling double standard: “Small molecules” that typically come in the form of pills or tablets face price-setting after they’ve been on the market for nine years, while injectable medicines called “biologics” get 13 years of exemption. This arbitrary “pill penalty” threatens to upend pharmaceutical innovation in ways that particularly harm chronic disease patients.
Here’s why: Some novel drugs can earn as much as half of their revenue in the final years before their patent protections expire, typically around 13 years after they reach the market. By shortchanging pills by four years, the IRA creates a powerful incentive for companies to prioritize investments in biologics.
Fortunately, there’s growing bipartisan recognition of this oversight in the IRA. The Ensuring Pathways to Innovative Cures (EPIC) Act would eliminate the pill penalty by giving all drugs the same 13-year reprieve from Medicare pricing. This wouldn’t solve everything, but it would remove an artificial barrier to developing the kinds of treatments many chronic disease patients prefer.
By fixing these shortcomings, policymakers can ensure the IRA fully delivers on its promise of affordable, accessible care.
Kenneth E. Thorpe, PhD is the Robert W. Woodruff Professor of Health Policy at Emory University and Chair of the Partnership to Fight Chronic Disease (PFCD). This piece originally ran in RealClearHealth.
