When it comes to medical tech and innovation, the United States is the global leader. A 2024 study by the Foundation for Research on Equal Opportunity (FREOPP) showed that American leadership in cancer treatment, solutions for autoimmune diseases, gene editing, and vaccine development with regulatory approval keeps the U.S. competitive in healthcare, despite struggles with fiscal sustainability and choice. Overall, Americans have a good thing going, and it would be easy to mess up. Unfortunately, that’s what is happening.
In 2022, the Biden administration’s Inflation Reduction Act (IRA) took effect, aiming, among other things, to reduce patient costs. One tool the IRA used to achieve this was fresh price controls on certain drugs covered by the Medicare program. That meant selecting drugs for special pricing rules, which began to dampen the incentives for pharmaceutical companies.
When the Trump administration returned following the 2024 elections, they didn’t reverse course. In fact, they doubled down by pushing for a “most-favored nation” policy tying U.S. drug prices to the lowest prices paid internationally.
As it stands, both brand-name innovators and even generic, biosimilar manufacturers are finding the landscape less appealing. Why invest billions into developing a new drug or a more affordable version if the government’s going to clamp down on prices the moment it hits the market?
You Don’t Know What You Got (Till It’s Gone)
Critics of big pharma tend to focus only on its profits, and less so on the at least 34% reinvestment into research and development. That cycle quietly lowers America’s already high costs in ways policymakers tend to miss. For example, when revenues were reinvested in hepatitis (HCV) treatments back in 2013, Medicaid saved an estimated $15 billion in likely patient costs — cumulative savings will reach $43 billion by this year.
FREOPP’s global rankings show that costs incurred by the healthcare system are dragging the U.S. down when it would otherwise be number one worldwide. Innovation is America’s unique edge.
Ironically, the Inflation Reduction Act’s updated list is now scooping up drugs that are about to face competition from generics. That wasn’t the original point of the IRA, but here we are.
Another problem with the Inflation Reduction Act that doesn’t get enough attention is how it treats drugs as if all use cases are the same. Once a drug lands on the IRA list, Medicare effectively sets one single price for it, no matter how many different diseases it treats or how much benefit it delivers in each case. There is no room for differential pricing.
Protecting Unrealized Gains of New Treatments
This happened to Eliquis, which is used to treat both strokes, blood clots and diabetes. The cardiovascular drug Jardiance, which is used for diabetes treatments that bring different value for the patients. A drug like Orencia, which is commonly used for psoriatic arthritis, might bring value to patients with severe autoimmune diseases such as lupus and multiple sclerosis. Landing on the IRA list prior to approval takes the wind right out of a drug’s sails and removes the incentive to spend millions on research for use cases beyond arthritis.
The consequence is pretty obvious to industry analysts, but for patients in the system and consumers broadly, the slowdown of innovative drugs and treatments is all but invisible. In an effort to cap costs, these policies inadvertently restrict both medical knowledge and patient access over time.
The Centers for Medicare and Medicaid Services (CMS) is likely to publish new considerations for the IRA’s list of covered prescriptions. It’s important to ensure that we’re not sacrificing long-term innovation for the sake of short-term cost savings. When the IRA first went into effect, the United States fell from 4th place worldwide to 11th in terms of its competitiveness on healthcare innovation, according to FREOPP.
Backsliding is still a very real possibility. If that happens, Americans will likely see fewer breakthroughs, fewer treatment options, and a healthcare system that’s less capable of meeting future challenges.
Fred Roeder is a Health Economist and Managing Director of the Consumer Choice Center
