Generic competition is the most effective way to lower prescription drug prices, but the Medicare program designed to set the price of certain medicines may upend that market and stand in the way of more affordable medications.
Consider Pomalyst, a cancer medication for multiple myeloma and for AIDS-related Kaposi sarcoma. It is one of the 15 prescription drugs selected by Medicare for price setting, known Maximum Fair Price (MFP), in 2027. Pomalyst’s manufacturer, however, expects generic versions of the medication as early as April 2026 — nine months before the federal government’s price control would go into effect.
For Medicare to invest in establishing the MFP price control for Pomalyst is a waste of taxpayer time, money and resources. And that’s not all. The consequences go beyond waste. The Medicare price controls could fundamentally undermine the generics market and set off a chain reaction that harms long-term affordability and supply.
While the price control will go into effect on January 1, 2027, Medicare will announce the price this November. Disclosing the Medicare price establishes a ceiling before generic manufacturers launch their alternatives. This market distortion may influence decisions made by generic manufacturers, pharmacy benefit managers and insurers, which can have implications on supply and competition, ultimately affecting the availability and out-of-pocket costs.
The evidence on American generic drug markets demonstrates a predictable pattern of price competition. The Food and Drug Administration has shown that the first generic to enter the market typically prices at 70 percent to 75 percent of the brand price. However, the price drops dramatically with two competitors, often 50 percent lower than the original brand’s price. More competition leads to lower prices. When five or more generic alternatives are in the market, the price can drop to 20 percent of the original price.
Involvement from Medicare is unnecessary. This competitive process saved the healthcare system $338 billion in 2020, according to IQVIA Institute.
Pomalyst is a clear case. The first generic is expected in April 2026, followed by at least six more after the 180-day exclusivity window before multiple generics manufacturers enter the market. If that market plays out naturally, we could see prices fall significantly in the first year, often by 80 percent or more. That’s how the system is supposed to work. If Medicare announces the MFP price control in November 2025, it risks cutting the generic competition off at the knees.
The presence of an MFP price control may deter generic entry altogether. When generic drugs first launch, those initial months are their best chance at making back the money it cost to develop and produce them. If Medicare has already put a cap on how much they can charge, that chance for a good early return might vanish. If fewer generic companies decide to enter the market, there is less competition. Without strong competition, prices will not fall as much as they should. Instead, they’ll likely be stagnant or close to the government’s set price.
Another alarming scenario is that the price control dynamic can trigger a price-war race to the bottom. That might sound good in the short term, but it’s not sustainable and leads to shortages. Generic drug makers operate on thin margins. When prices collapse quickly, especially due to government-imposed price controls, some manufacturers will leave the market because they cannot sustain operations. Others may be unable to reinvest in production facilities because prices are too low. This is one reason we’ve seen an increase in drug shortages: large purchasers demand unsustainably low prices, and manufacturers cannot justify or afford to continue manufacturing. The supply chain collapses.
Medicare has said it will remove the MFP price control once there is meaningful generic or biosimilar competition. By that point, the market has been reshaped. Veterans Affairs sets price limits on prescription drugs used by veterans. A study in a health economics journal found that when these price limits were in place, 45 percent fewer generic drug manufacturers participated in that market compared to markets without price controls.
By anchoring future generic prices to an artificially capped brand-name price, the Medicare MFP price controls erode the competitive dynamics that have delivered cost savings. Medicare’s intervention could inadvertently diminish the market forces that have made generic medicines more affordable.
America typically has lower generic drug prices than Europe because we have a system that allows competition to naturally drive down prices. A 2024 RAND Report suggests that the United States pays one-third less for unbranded generic drugs compared to Europe. Most European countries adopt government price controls for all prescription medicines — brand, generic and biosimilars. Prices decline in Europe when generic alternatives are available but not as significantly as they do in the United States. The generic European prices often remain in effect for years.
We all want lower prescription drug costs, and we already have an effective solution that achieves that: generic and biosimilar competition. It works — not through mandates, but through market forces. The government doesn’t need to step in with blunt instruments like the Maximum Fair Price. If the Centers for Medicare & Medicaid Services wants lower costs for Medicare and patients, it should allow the generics market to work.
