In a bill chock full of bad policies, the drug pricing provision of the Inflation Reduction Act stands out as particularly troubling. This provision establishes a negotiation process to set a Maximum Fair Price (MFP) on selected drugs for Medicare patients.
The MFP for the first 10 drugs were finalized last year (to become effective on January 1, 2026). The administration is now negotiating the MFP for the next 15 drugs, which will be effective on January 1, 2027.
Because the legislation calls the MFP a negotiation doesn’t make it so. By statute, the government has the authority to impose draconian penalties on companies that do not comply with the process, including an excise tax up to 95 percent of the drug’s entire U.S. sales. With such a huge stick, the negotiations are in name only. In reality, the government is not negotiating but imposing drug price controls on Medicare patients. Like all price controls, the MFP creates adverse consequences that impose net costs on society.
Paramount among these costs are the lost drug innovations. A 2025 study in the journal Therapeutic Innovation & Regulatory Science found that, after the IRA passed, the average number of industry-sponsored post-marketing trials declined by 38.4 percent.
Confirming these results, firms that provide laboratory and research services to innovative drug manufacturers have been cutting their revenue forecasts and reducing staff due, in part, to the research disincentives created by the drug price controls.
Unfortunately, foregone drug innovation often increases healthcare spending. For example, the potential savings enabled by anti-obesity medicines exemplify what’s at stake.
Obesity costs the U.S. healthcare system $173 billion annually, according to the Centers for Disease Control and Prevention. It is “a common, serious and costly chronic disease” associated with more than 200 comorbidities that include hypertension, type 2 diabetes, coronary heart disease, certain cancers and asthma.
Beyond the healthcare system, obesity reduces people’s productivity and likely their earning power, which adversely affects economic growth. Based on global economic estimates, the U.S. economy may be more than 2 percent smaller today because of obesity.
Studies have demonstrated that anti-obesity medicines can efficaciously treat this disease by helping patients lose significant amounts of weight in a timely and healthy manner. One telehealth study evaluated nearly 54,000 patients and found that the average weight loss for patients on anti-obesity medicines was 8.9 percent at three months and 19.4 percent at one year.
The data also find that, with obesity under control, patients experience significant improvements in health outcomes. They require fewer expensive surgeries, hospital stays, emergency services and other medical treatments. It is the reduction in these other higher-cost health interventions that leads to significant net healthcare savings in the economy.
A 2023 study by the USC Schaeffer Center for Health Policy & Economics estimated that “in the first 10 years alone, Medicare coverage of weight-loss therapies would save the program $175 billion to $245 billion, depending on whether private insurance also covers the treatments.”
A 2024 study in the American Journal of Managed Care found that patients’ healthcare costs declined by $7,502 after they began treatment with semaglutide (i.e. Wegovy). Importantly, “these reductions in medical costs occurred despite the additional cost of the semaglutide treatment itself, which is known to be expensive.”
These findings of net savings are also consistent with the pricing of anti-obesity medicines. For example, Eli Lilly (the manufacturer of Zepbound) offers the medicine for $499 per month, while the low-end estimated value of these medicines by either the Institute for Clinical and Economic Review or USC Schaeffer Center is $625 per month.
Future drug innovations offer the same promise as anti-obesity medicines, potential treatments that enable health improvements for patients and generate significant net savings for the healthcare system. This is why the IRA’s drug price controls are so troubling.
These policies diminish the amount of drug innovation that occurs now and in the future, denying patients potential treatments that could meaningfully improve their lives while an opportunity to reduce costly healthcare expenditure is lost. Such losses are worth remembering as the administration continues down the path of drug price controls.