The Congressional Budget Office and Budget Committee’s Health Care Task Force recently put out a request for research on the effects of legislation on new drug development. In examining policies that impact the development of new medicines, two current issues stand out: Medicare price controls and recently proposed changes to march-in guidelines aimed at pharmaceutical companies. These are often presented as ways to reduce the cost of drugs but result in less innovation.

Recently proposed Medicare price controls from the Inflation Reduction Act (IRA) have allowed Medicare to effectively set the prices of 10 drugs, with more to be announced each year. Price controls stifle innovation by limiting or removing the incentives for innovation[1] and they create shortages.

If new medicines are subject to price setting from the Department of Health and Human Services, then they will have less value to drug developers.  Additionally, this creates an incentive to raise or set high prices for non-Medicare users to make up the cost,[2] meaning higher initial prices for new drugs. Markets with more price controls in place are unlikely to see new innovations,[3] and higher prices lead to demand repression, as well as less drug adherence that could lead to harmful consequences to patients.

Price controls tend to discourage investment and production, but the provisions in the IRA also distort the market by including different standards for small molecule drugs and biologics. This has resulted in investment shifting from small molecule drugs to biologics.[4] Biologics are notoriously difficult to make into biosimilars, while small molecule drugs are much easier to replicate. This means in the long run more medicines won’t have a generic version available at lower prices. This means that patients will pay more and buy less, thereby leading to consumer welfare losses.

Recently proposed march-in guidelines also discourage investment in new medicines.  The proposals would expand the ability of all federal agencies to take control over privately-owned patents.[5] These new rules would apply to all patents that have received federal funding but have been specifically targeted at pharmaceuticals. Removing the ownership rights of patent holders discourages people from accepting federal investments in research, as they don’t know if they will have control of the patent they develop. Universities are worried that these rules will lessen outside investment as well.[6]

Heavy-handed regulations intended to control drug prices impose disincentives on developing new drugs. Instead, it would be more effective to address the price issues with drugs by encouraging the development of generic medicines without imposing on companies developing new medicines by taking control of their products or patents. The result will be a great availability of lower cost medicines and improved consumer welfare for patients.

[1] Justin Leventhal, “Price Controls Aren’t the Cure for High Medicare Drug Prices,” The American Consumer Institute, September 11, 2023,

[2] “ICYMI: Drug Price Controls Mean Slower Cures,” House of Representatives Budget Committee, August 31, 2023,

“Patient Access Report,” U.S. Chamber of Commerce Global Innovation Policy Center, accessed December 27, 2023,

[4] Deena Beasley, “Focus: Drug companies favor biotech meds over pills, citing new U.S. law,” Reuters, January 13, 2023,

[5] Justin Leventhal, “March-In Guidelines Are Marching in the Wrong Direction,” The Economic Standard, December 18, 2023,

[6] Barbra Snyder, Peter McPherson, Wendy Streitz, David Skorton, Stephen Susalka, and Joseph Allen, Open Letter to the U.S. Secretary of Health and Human Services, July 27, 2022,