Commentary: New drug price controls, same old consequences

The government recently announced a new batch of drugs — including blockbuster weight-loss treatment Wegovy and prostate cancer therapy Xtandi — that will face price controls under the Inflation Reduction Act.

Inside Sources

These price controls won’t result in more affordable and accessible medicines. They’ll stifle the development of lifesaving drugs while inflating healthcare costs. It’s up to the administration and Congress to prevent this damage — by rolling back the law’s worst provisions.

The 2022 Inflation Reduction Act empowered bureaucrats to dictate drug prices within Medicare, which covers 68 million Americans. While the government has deemed these proceedings “negotiations,” they could hardly be more one-sided. Manufacturers who don’t accept the government’s price demands face exorbitant taxes or removal from Medicare entirely.

Contrary to popular belief, the government unilaterally setting lower medicines prices won’t necessarily affect out-of-pocket costs. Insurers who manage Medicare drug plans can impose barriers, such as prior authorization and step therapy, that make it harder for patients to obtain price-controlled medications. Instead, they may steer patients toward drugs that offer larger rebates and discounts — maximizing insurer profits rather than patient savings.

In fact, price controls will increase pharmacy costs for millions by slowing how quickly they reach the IRA’s $2,000 annual out-of-pocket cap. One study on the IRA’s first set of price controls found that 3.5 million Americans will experience higher out-of-pocket costs — a 12 percent hike — starting in 2026 due to price controls.

While the IRA’s $2,000 annual cap will provide more relief than price controls in helping seniors afford high-cost but essential treatments, it may also lead to unintended financial burdens for some. Previously, the government covered 80 percent of costs above the $7,400 “catastrophic” threshold, with insurers responsible for 15 percent. However, under the new law, insurers must now cover 60 percent of costs beyond the $2,000 limit.

Insurers will likely introduce more access restrictions and raise premiums to manage this increased financial risk. In fact, this is already happening — Part D premiums rose by an average of 21 percent in 2024.

The actual costs of the IRA’s price controls aren’t confined to patients’ wallets, though. Left unchecked, the law will devastate medical innovation for years to come.

More than 90 percent of experimental drugs fail in clinical trials. That high failure rate explains why it costs $2 billion, on average, to bring a single drug to market.

Drug companies rely on their rare commercial successes to offset the expensive losses of their numerous failed ventures. These sparse victories also enable manufacturers to acquire start-ups, which generate a significant share of medical discoveries.

By introducing the possibility that the government can unilaterally lower the prices of successful next-generation medicines, the IRA discourages companies from investing in promising new lines of research.

Since the IRA’s passage in 2022, drugmakers have abandoned 22 experimental medicines and 40 research projects due partly to the added financial uncertainty created by price controls. Novartis, for example, dropped several early-stage cancer drugs from its development pipeline in 2023, explaining that they were no longer financially viable.

The long-term toll looks to be catastrophic. Researchers at the University of Chicago project that 135 fewer drugs will be developed by 2039 because of the law’s price controls. Another study estimates that 139 fewer drugs will come to market by 2034.

The IRA’s price controls are particularly devastating for cancer therapies classified as “small molecule” drugs. Under the IRA, these treatments can be subjected to price controls four years sooner than large molecule “biologic” drugs.

Consequently, drug companies are diverting their investments away from small molecule treatments — stifling the hopes of millions of Americans battling debilitating diseases.

Congress can fix this by passing the bipartisan EPIC Act, giving small molecule drugs the same 13-year exemption from price controls that apply to biologic drugs.

This reform would save countless lives — and represent a first step toward rolling back the IRA entirely.

Sandip Shah is the CEO of Market Access Solutions. He wrote this for InsideSources.com .