By Karen Kerrigan | President & CEO, Small Business & Entrepreneurship Council
A key goal of President Biden’s Inflation Reduction Act was to lower drug prices for seniors. That would have been readily achievable — by curtailing the practices of the supply chain middlemen responsible for employer and patient drug costs, called Pharmacy Benefit Managers, or PBMs, to game the system and rake in billions in profits from taxpayers.
That was the road not taken. Instead, the IRA empowers Medicare officials to “negotiate” lower prices from drug makers — in reality, to impose price controls.
This path is now threatening the lifeblood of American medical innovation — our small biotech firms. Unless Congress changes priorities, we can give up hope for a new generation of breakthrough treatments in areas from cancer to Alzheimer’s.
The Centers for Medicare & Medicaid Services finalized the first round of price caps, which will take effect in 2026. While headlines focus on reigning in pharmaceutical giants, they miss a crucial fact: more than half of FDA-approved drugs in the past decade trace their origins not to Fortune 500 corporations but to modest labs nationwide. These small biotechs — often operating on a shoestring — are usually the ones pushing the boundaries of science.
The IRA’s price controls are a blunt instrument. While large corporations with diverse drug portfolios might weather this storm, small biotechs responsible for the lion’s share of innovation — often staking their future on a single promising molecule — could face a catastrophic disruption to the early-stage funding on which they depend.
Indeed, a University of Chicago study predicts that the IRA will significantly reduce investment in drug research and development. This could result in dozens of potential therapies never seeing daylight.
Now, consider the road not taken. Researchers in lab coats are not the source of higher prices. The insurance middlemen, the PBMs, reward themselves handsomely for their dominant role in getting medications from drug makers to patients and controlling virtually every transaction made in the drug supply chain from manufacturer to your local community pharmacy counter.
The entities, operating with minimal transparency, have long been the silent architects of drug pricing complexity. They’ve created a byzantine system that pushes drug makers into setting artificially high list prices to meet the demands of PBMs for steep discounts. Insurance plans then conceal the discounts from enrollees and charge coinsurance based on the list price.
PBMs also squeeze independent pharmacies and small drug developers. Their practices helped shutter nearly 2,200 pharmacies between 2017 and 2020, leaving many communities, especially rural ones, without easy medication access.
PBM industry consolidation — three companies control 80 percent of the prescription drug market — gives them a chokehold on prices. Their vertical integration with insurance companies and pharmacy chains breeds conflicts of interest that harm patients and innovators alike.
Instead of doubling down on the IRA’s flawed approach, Congress should pivot to meaningful PBM reform. Mandating negotiation transparency, ensuring cost savings benefit patients, not PBMs, and allowing patients genuine pharmacy choice would do more to reduce drug costs than blanket price controls ever could.
We stand on the cusp of incredible medical breakthroughs — from personalized cancer vaccines to gene therapies that could cure hereditary diseases. Our choice is clear: continue down the IRA’s intrusive price-control path, risking small biotechs’ future, or course-correct by reforming the bad practices gaming the system.
