US Drug Price Negotiations May Not Cut Costs Significantly, Say Experts: 'Sizzle Is Bigger Than The Steak'

The U.S. government’s newly acquired ability to negotiate drug prices may not drastically alter the amount Americans spend on their medications, according to industry experts.

What Happened: The Inflation Reduction Act, a landmark legislation by President Joe Biden, permits the U.S. government to negotiate directly with drug manufacturers. While progressives hail this as a significant win for consumers, some in the pharmaceutical sector caution that it could potentially hamper innovation due to price controls, Bloomberg reported on Monday.

However, the impact of this legislation on drug costs for most Americans may be minimal. The law only applies to Medicare, which covers roughly 20% of the U.S. population, and its negotiated prices, due to come into effect in 2026, will only affect 10 of the most expensive drugs in the program.

David Maris, a seasoned pharmaceuticals analyst and managing partner at Phalanx Investment Partners, believes that the future profitability of the pharmaceutical industry is not under threat. He notes that the industry has consistently demonstrated its ability to overcome profit challenges. Hence, any negotiation from the government will not necessarily result in reduced drug prices at the cost of profits.

See Also: Benzinga’s ‘Stock Whisper’ Index: 5 Stocks Investors Secretly Monitor But Don’t Talk About Yet

"The story, as with pretty much any government program, is that the sizzle is bigger than the steak," Maris said.

"I do think they had their hearts in the right place, but I'm 100% confident it will not result in meaningfully lower prices that most consumers notice."

Moreover, the intricate system of discounts, rebates, and middlemen, which often confuses and sometimes bankrupts consumers, is unlikely to be significantly altered by government negotiation.

Despite the limited scope of the new legislation, policy experts argue that it is a crucial step towards rescuing the Medicare program from collapse. The law also introduces a $2,000-a-year cap on out-of-pocket drug spending, which will benefit American seniors who often face the tough choice between buying medication and paying rent.

"The drug industry has historically been successful with these Chicken Little arguments," said Michelle Mello, professor of health policy at Stanford Law School.

"But I think people will see this come online and notice that the sky hasn't fallen and they kind of like not being gouged on high-cost drugs."

Why It Matters: This issue was highlighted by Rep. Alexandria Ocasio-Cortez (D-N.Y.) in a recent podcast, where she criticized the rising healthcare cost that Americans are left to contend with.

Furthermore, President Biden has called for an increase in the number of prescription drugs subject to negotiation under the federal Medicare program, as part of a broader initiative to make medications more affordable for seniors. This proposal, outlined in his State of the Union address, aims to expand the current target of 20 drugs per year to at least 50 by 2029, a move that is expected to face strong opposition from the pharmaceutical industry due to its impact on profits.

Read Next: This Biopharma Stock Is Trading 23% Higher In Pre-Market After Wrapping Up $4M Public Offering

Image: Unsplash/ Volodymyr Hryshchenko

This story was generated using Benzinga Neuro and edited by Pooja Rajkumari