This essay examines the impact of the Inflation Reduction Act’s Medicare prescription drug price negotiation program. The new price controls will lead to higher launch prices, offsetting expected savings for Medicare and its enrollees. The societal costs of reduced innovation outweigh the small financial benefits to the government and Medicare recipients.
Key Takeaways
- The Inflation Reduction Act's price controls will prompt drug manufacturers to raise initial drug prices, offsetting much of the expected Medicare savings.
- After accounting for manufacturers’ price responses, Medicare expenditures are projected to decline by only 1.1 percent, with negligible financial benefits for most enrollees.
- The Inflation Reduction Act's drug price negotiation program will lead to fewer new drugs and therapies, with potential long-term societal costs outweighing short-term Medicare savings.
Medicare Drug Price Regulation: Small Savings, Large Innovation Losses by Hoover Institution
Cite this essay:
John F. Cogan, Daniel L. Heil, and Casey B. Mulligan. “The Impact of the Medicare Prescription Drug Price Negotiation Program on Medicare Expenditures, Medicare Enrollee Payments, and Innovation.” Healthcare Policy Working Group, Hoover Institution. March 2025.
