The unspoken assumption behind the prescription drug price controls at the heart of the Democrats' August 2022 Inflation Reduction Act (IRA) is that the pharmaceutical market is broken.
According to this view, drugmakers have the power to charge whatever they want. Only a sweeping system of government price-setting can put the average patient on equal footing with "Big Pharma."
But new research from investment bank Leerink Partners' Center for Pharmacoeconomics tells a different story — and shows how the IRA's price controls could significantly harm patients in the long term.
The study looked at 15 "superstar" drugs, each of which launched between 12 and 16 years ago. It found that many of the economic incentives and market dynamics governing these medicines have worked to the benefit of patients.
Thirteen of the 15 drugs received supplemental approvals; the average drug received 4.5 such approvals. Each of these approvals represents a new patient group that benefits from the drug.
In addition, 60% of the drugs were already subject to generic or biosimilar competition, which brought prices down by anywhere from 87% to 99%.
These huge benefits — more patients benefiting from novel drugs, and paying less for those benefits, over time — are at risk because of the IRA's price controls.
Here's how they work:
Ten drugs dispensed through Medicare's Part D prescription drug benefit will be subject to price controls starting in January of 2026.
An escalating number of drugs will be hit by the scheme in the years that follow.
The federal government can set the prices of chemically synthesized small-molecule drugs — generally pills — nine years after approval.
For biologics — medicines made using living cells, often administered intravenously — price controls can kick in 13 years after approval.
These price controls will diminish the incentive for manufacturers to seek approval for indications beyond the first.
Why invest in new research and clinical trials if price controls are looming — and revenue for treating those additional indications is capped?
In the end, potentially lifesaving new uses for existing medicines may go undiscovered.
Price controls also diminish the incentive for manufacturers to launch generic versions of novel products.
There's no point in creating a generic competitor to a drug that will be subject to price controls.
Those price caps are permanent. And because a new batch of drugs will be hit with those caps each year, the potential market for generics will gradually shrink.
It's plausible that generic competition would deliver lower prices than government price controls can.
According to research from the RAND Corporation, prices for unbranded generics in the United States were 67% of the price of generics across thirty-three OECD countries — many of which, of course, maintain price controls on brand-name drugs.
In 2023, the average out-of-pocket cost for a generic medication in the United States was just $7.05. Generics also account for over 90% of all prescriptions filled each year.
The IRA's price controls could devastate the generics market — and deprive patients of access to low-cost medicines today and in the future.
Repealing the IRA's price controls, while wise from a policy perspective, may be politically impossible, given Republicans' narrow margins in Congress. The Leerink Partners report hints at one way to mitigate the damage in the short term.
Of the medicines in the study that face generic competition, the average time between approval and the release of a biosimilar or generic equivalent was just over 12 years.
That's an argument for giving small-molecule drugs 13 years of unencumbered sales before subjecting them to price controls, just like biologics.
Doing so would restore incentives for drug makers to invest in developing small-molecule drugs, which are often easier for patients to take and are particularly adept at treating cancer and neurological diseases.
It would also align with how the drug market was functioning before the government got involved — and thereby minimize the damage price controls are bound to inflict on medical innovation and patient health.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is "The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It" (Encounter 2025). Follow her on X @sallypipes. Read Sally Pipes' Reports — More Here.
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