On Jan. 17, just days before leaving office, the Biden administration announced the next 15 prescription drugs dispensed through Medicare Part D that will be subject to price controls on Jan. 1, 2027, under the terms of the Inflation Reduction Act.
Among them is the blockbuster semaglutide, a prescription medication sold by Novo Nordisk under the brand names Ozempic, Wegovy, and Rybelsus for the treatment of Type 2 diabetes and obesity. The IRA required the federal government to publish the list of 15 drugs before Feb. 1, and so the Biden administration decided to act on its way out the door.
The makers of those 15 drugs have until Feb. 28 to decide whether to enter into negotiations with the government.
But really, it's no decision at all. Any firm that refuses to accede to the government's demands will face an excise tax totaling as much as 95% of that medicine's sales.
Democrats claim these shakedown tactics are in the best interests of seniors. But evidence is mounting that the IRA's price controls are exerting a huge negative impact on America's health sector.
Take their effect on medical innovation. By capping what drug companies can charge for their latest inventions, the IRA's price controls are making drug development less attractive to investors — and far riskier for entrepreneurs and scientists.
Why would anyone spend roughly $3 billion to create a new medicine and shepherd the therapy through the regulatory process if the government can effectively name its own price for that drug after it hits the market?
Thanks to the IRA's price controls, which were signed into law by former President Joe Biden in August 2022, Americans can expect to see far fewer new treatments in the years ahead. According to a study by the consulting firm Vital Transformation, in fact, the IRA's drug pricing reforms will reduce the number of new medicines by 139 over the next decade alone.
One might argue that such a slowdown in innovation is worth accepting, if it means that more Americans will be able to afford drugs on the market now. But one of the tragic ironies of these price controls is that they won't save patients much money.
On the contrary, in 2026, seniors in Medicare Part D plans who take one or more price-controlled drugs are more likely to see their medication costs increase than decrease.
Part D premiums have shot up since the IRA's passage. They rose 21% in 2024 and are rising again this year.
The quality of coverage is declining, too. Nine in 10 insurers expect to exclude more drugs from their Part D plans because of the price controls.
How is it possible that price caps on prescription drugs haven't translated into savings for patients? These price controls do not address the root causes of high out-of-pocket drug costs — namely the market-distorting business practices of pharmacy benefit managers.
PBMs are the middlemen that insurers hire to negotiate with pharmaceutical companies over what they'll pay for drugs. Three of them — Express Scripts, CVS Caremark, and Optum Rx — control 80% of the market.
PBMs typically demand rebates or discounts from manufacturers in exchange for including a drug on an insurer's formulary, or list of covered drugs. The bigger the discount or rebate relative to a drug's list price, the bigger the payday for the middleman.
So PBMs actually have an incentive to favor drugs with high list prices from which they can extract large discounts and rebates.
Since 2019, the value of "discounts, rebates, and other price concessions" secured by PBMs has increased by almost 60%. Patients are not sharing in those savings. Out-of-pocket drug spending ticked upward since 2019.
That's because insurers generally determine patients' cost-sharing obligations as a percentage of a drug's list price, not the lower net price they enjoy.
Not only has the IRA's price control scheme slowed investment in innovation — it's actually raised costs for seniors. Things could get worse, as the IRA envisions imposing many more price controls in the years to come.
President Donald Trump has the chance to protect patients from the worst consequences of these price controls.
Perhaps his administration can find a way to pause the IRA's latest round of price controls before they do any more damage. But what's really required is full-scale repeal by Congress.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.
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