The Inflation Reduction Act (IRA), signed into law in 2022, created the Medicare Drug Price Negotiation Program.[1] The program grants the federal government extraordinarily broad authority to set prices for certain medicines under Medicare Part D and Part B. The government-mandated prices apply starting in 2026, and the number of negotiated drugs will expand annually. The program departs from the longstanding tradition of non-interference in private negotiations for Medicare plans. While proponents claim that the program may curb federal spending on pharmaceuticals, many manufacturers, industry organizations, and patient groups have argued that the program raises significant concerns for biopharmaceutical innovation and long-term patient access to breakthrough therapies.[2]
The IRA prioritizes short-term government financial gains over sustainable innovation. For example, by determining a product’s eligibility based on the date it received its first FDA approval, the program discourages post-approval research into new indications, formulations, and delivery methods—critical work that often occurs years after a product’s initial launch.[3] This may lead to fewer clinical trials for additional uses of existing medicines and delay the introduction of new treatments, as the program may incentivize companies to extend development timelines so that multiple indications or indications with larger patient populations can be approved as part of an initial launch.[4] Furthermore, the IRA drug-pricing program’s differential treatment of small-molecule drugs—subject to selection after seven years, versus eleven for biologics—has already shifted investment away from small-molecule drugs, which are essential for treating conditions like cancer and neurodegenerative diseases. For example, early-stage funding for small molecule drugs has reportedly fallen by nearly 70 percent since the IRA’s passage, signaling a chilling effect on innovation.[5]
The drug-pricing program also relies on coercive and punitive enforcement tools that raise constitutional concerns. If a manufacturer “declines” to participate in the program, it faces a so-called “excise tax” that can reach tens or hundreds of millions of dollars per day. Because no manufacturer could afford to pay such an amount, the penalty effectively compels compliance.
[1] The Inflation Reduction Act of 2022, Pub. L. 117-169; see also 42 U.S.C. § 1395w-111(i).
[2] See e.g., T. Wilbur, “Three reasons why repealing the Part D non-interference clause is a bad idea,” PhRMA (Oct. 1, 2020).
[3] EBRI Center for Research on Health Benefits Innovation, “What employers should know about the Inflation Reduction Act and drug development,” Report No. 529 (May 1, 2025).
[4] J. Patterson et al., “Unintended consequences of the Inflation Reduction Act: Clinical development toward subsequent indications,” 30:2 American J. Managed Care 82 (2024).
[5] D. Schulthess et al., “The Inflation Reduction Act’s Impact Upon Early-Stage Venture Capital Investments,” 59 Therapeutic Innovation and Regulatory Science 796 (2025).