Study warns Medicare drug price caps could lift long-term costs
Research from the University of Chicago suggests that Medicare’s new pricing limits may ultimately increase the lifetime cost of the first 25 drugs subject to the rules.
Four years after President Biden signed the Inflation Reduction Act, a University of Chicago team examined its impact on drug pricing. The researchers found that forcing Medicare to set prices early cuts the earnings of brand-name drugs, making the market less appealing for generic and biosimilar firms. Fewer entrants mean weaker price competition once exclusivity ends, which the model predicts will raise average post-exclusivity prices by about 45%.
Over a 35-year horizon, these higher prices would more than erase the projected $100 billion in taxpayer savings, resulting in a 19% increase in lifetime costs for the 25 drugs studied. The analysis highlights a trade-off between short-term price control and long-term market competition. Policymakers are urged to consider how the rule may reshape incentives for future drug entrants.
Why it matters
The findings suggest a major policy could backfire, raising drug costs for future patients.
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