In an effort to tackle rising prescription drug costs, the 2022 Inflation Reduction Act instituted a series of price controls set to take effect in 2026. New analysis, however, shows that those price controls may be a driving force for increased prices.
Beginning in 2026, the IRA provision known as the Medicare Drug Price Negotiation Program is set to institute a series of price controls that experts from the Federal Reserve predict will increase prescription drug costs. The White House has released a list of the first 10 drugs expected to be included in the program.
Price controls may have major generational consequences. A report by the Information Technology and Innovation Foundation found that existing price controls in other countries already choke-off research and development funds, preventing as many as 25 new treatments from coming to market annually.
“When wealthy countries impose price regulations on drugs, they fail to balance the welfare of current and future consumers,” the study said. “This means today’s price controls will reduce the number of new drugs available to future generations in all countries, including to cure diseases such as heart disease, cancer, stroke, and Alzheimer’s. Conversely, lifting price regulations benefits all countries because it would boost biopharmaceutical revenue, leading to an increase in R&D and the development of new drugs.”
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Additional data suggests concerns over prescription drugs costs may be misplaced. According to Drug Channels Institute and data provided by drug companies themselves, net prescription drug prices have actually declined in comparison to inflation. While the list price for most drugs has increased dramatically, rebates, negotiated price reductions, co-pays, and other factors have reduced the real price paid to manufacturers.
So what is accounting for increased total costs at the pharmacy?
Experts say it is an increase in the number of prescriptions and a failure of insurance companies to pass rebate savings on to consumers.
The last time the United States tried capping drug costs, the result was a reduction in incentives and discounts for private payers, not a reduced cost to Medicaid. Prescription drug companies that do not conform to price controls would be subject to a 95% excise tax.
