Photo by Dominik Lange on Unsplash
On April 15th, President Trump signed an executive order aimed at lowering prescription drug prices. This EO contains several provisions that will protect medical innovation and reduce the cost of medicine for Americans. Notably, these provisions include fixing the Inflation Reduction Act’s pill penalty, accelerating the approval of generics/biosimilars, and scrutinizing government spending on healthcare. President Trump should be applauded for making these important changes.
Section 3 of the EO, “Improving upon the Inflation Reduction Act,” directs the HHS Secretary to propose and seek comment on guidance for the so-called drug price “negotiations” required by the Inflation Reduction Act. As the EO outlines, President Trump plans to improve transparency regarding these negotiations:
The guidance shall improve the transparency of the Medicare Drug Price Negotiation Program, prioritize the selection of prescription drugs with high costs to the Medicare program, and minimize any negative impacts of the maximum fair price on pharmaceutical innovation within the United States.
Improving transparency for IRA implementation is vital. After all, from the start, the Biden CMS wouldn’t even accept public comments regarding implementation. A memo released by the CMS in March 2023 stated that its Section 30 (The “identification of Selected Drugs” for 2026) is “final” without accepting public comments. Additionally, it stated that the “CMS may make changes to any policies, including policies on which CMS has not expressly solicited comment, based on the agency’s further consideration of the relevant issues” – they aren’t even held to the memo they release, and can make changes without making a public statement beforehand simply based on their subjective “further consideration”.
Further, buried in Section 40 of the same memo is a statement that all information and communication between CMS and Pharmaceutical Manufacturers shall be destroyed – including initial and subsequent offers, justifications, and “any written notes or emails pertaining to negotiations.” Improving transparency in this process will ensure fairer treatment and prevent bureaucratic abuse.
Also in Section 3, the President calls on the Secretary to work with Congress to fix the IRA pill penalty:
The Secretary shall work with the Congress to modify the Medicare Drug Price Negotiation Program to align the treatment of small molecule prescription drugs with that of biological products, ending the distortion that undermines relative investment in small molecule prescription drugs, coupled with other reforms to prevent any increase in overall costs to Medicare and its beneficiaries.
The IRA gave the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. In reality, the Secretary is given the power to simply determine the price he or she deems acceptable and impose a steep tax of up to 95 percent on companies who charge more. The number of drugs the HHS Secretary sets prices for will increase by 15 in 2028 and 20 in 2029, for, eventually, a total of 60.
Under the IRA, the HHS can impose price controls on small molecule drugs after 9 years (7 years post FDA approval + 2-year negotiation period). Conversely, biologics face price controls after 13 years (11 years post FDA approval + 2-year negotiation period). This disparity in treatment, the pill penalty, has already disincentivized innovation for small molecule drugs.
As outlined by the Information Technology and Innovation Foundation (ITIF), “small-molecule drug funding has dropped 70 percent since legislation that would become the IRA’s drug pricing provisions was first drafted in September 2021.” In fact, in the first seven months of 2024, biologics “received 10 times more funding than small molecules, despite the versatility and necessity of both types of drugs.”
ITIF also highlighted a survey conducted by SLAM Biotherapeutics which found that, out of the 100 venture capital firms surveyed, over 75 percent planned of divesting from small molecule companies. Further, 78 percent of pharmaceutical companies reported that they expect to cancel early-stage small-molecule pipeline projects.
Correcting this disparity will not only protect small molecule drug innovation, but it will lower drug prices. Large molecule drugs are typically injected or infused in a doctor’s office or hospital, requiring patients to pay for both the drug and the administration of the drug. Because of the complex nature of biologics, they are typically more costly to make and take longer to hit the market. Thus, the pill penalty shifts investment towards more expensive treatments, driving up the cost of healthcare.
Section 9 of the EO directs the FDA Secretary to issue a report providing administrative and legislative recommendation to 1) accelerate approval of generics, biosimilars, combination products, etc. and 2) improve the process by which prescription drugs can be reclassified as over-the-counter medications. This will help lower cost products hit the market sooner, saving Americans money.
The EO also includes several provisions designed to scrutinize the government’s spending and efficiencies (or lack thereof). This includes aligning Medicare payment with hospitals’ cost of acquisition, enhancing oversight in Medicaid drug payments, and ensuring Medicare payments aren’t encouraging a shift in drug administration volume away from less costly physician office settings to more expensive hospital outpatient departments.
ATR applauds President Trump for passing these important reforms – patients and taxpayers will benefit greatly.