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Yes, but not without tradeoffs—or guarantees. The United States can use negotiation, inflation rebates, competition and other policies to reduce drug prices. The effect depends on which medicines and buyers are covered, how insurers and manufacturers respond, and whether lower expected returns change companies’ research decisions. The available evidence supports a real tension, not a simple choice between affordable prescriptions and new treatments.
What could lower drug prices, and by how much?
Drug prices are shaped by factors including exclusive sales rights under patent and FDA rules, insurance coverage and market conditions, and competition from medicines with similar clinical effects. Those conditions vary by drug and over time, so no single policy affects every medicine or purchaser in the same way. In its October 2024 analysis, the Congressional Budget Office (CBO) modeled several approaches and estimated their effects on average U.S. retail prescription-drug prices in 2031, compared with then-current policy.
| Modeled approach | How it works | CBO estimate for 2031 |
|---|---|---|
| International reference pricing | Sets maximum U.S. prices using prices in high-income foreign countries. | Average U.S. retail prices more than 5% lower. This is a modeled estimate, not an observed outcome or guaranteed saving. |
| Negotiating prices for more drugs each year | Expands the number of drugs subject to Medicare negotiation. | Average prices 0.1% to 3% lower, depending on the modeled scenario. |
| Extending negotiated prices to commercial purchasers | Makes negotiated prices available to commercial buyers as well as the covered Medicare market. | Average prices 1% to 3% lower. |
All three estimates are CBO projections for 2031 under specified policies, not measured savings since enactment. They refer to average retail-channel prices after rebates and discounts, across brand-name, generic and biosimilar medicines. They should not be read as predictions of a patient’s pharmacy bill, a list-price cut for every drug, or a reduction in federal spending of the same size. CBO notes that manufacturers could respond to reference pricing by changing prices or availability in foreign markets.
Why an average can hide a much larger cut to selected drugs
A market-wide average includes medicines unaffected by a policy. Under one CBO-modeled expansion of Medicare negotiation, the additional drugs selected for negotiation were projected to have Part D net prices 25% to 40% lower in 2031. That larger change for a subset of medicines can coexist with a smaller average-market effect because those drugs make up only part of total spending.
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What the Inflation Reduction Act changes
The Inflation Reduction Act (IRA) combines policies that work through different channels. It provides for negotiation of prices for selected high-expenditure drugs, inflation rebates when certain prices rise faster than inflation, and a redesigned Medicare Part D benefit that caps enrollees’ annual out-of-pocket spending and shifts more financial liability to plans and manufacturers. A negotiated price, a rebate, a patient’s cost at the pharmacy and the federal budget’s net cost are different measures; a change in one does not establish an equal change in the others.
CBO’s July 29, 2026 reassessment said spending reductions from negotiation and inflation rebates had been smaller than initially estimated, while costs from the Part D redesign had been substantially larger than anticipated. Taken together, CBO projected the provisions would increase deficits over 2022–2031. That is a federal budget projection, not a finding that negotiation failed to lower prices or that beneficiaries did not receive affordability protections. It also does not by itself measure the full effect on patients or future medical innovation.
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Who may benefit, and who bears the costs?
The answer varies with the policy and the person paying. Medicare beneficiaries may benefit from lower costs for medicines they use or from Part D’s out-of-pocket cap. Medicare, Medicaid, commercial insurers, employers and patients can experience different changes because they buy medicines under different rules and face different cost-sharing arrangements. Manufacturers may receive less revenue on affected products, while insurers and plans may take on more liability under benefit redesign. The final effect on a household depends on its prescriptions, coverage and cost-sharing—not just the national average price estimate.
Negotiation can also reach beyond a drug’s direct sales. CBO describes possible effects on Part D and Medicaid prices for selected drugs and therapeutic competitors; extending negotiated prices to commercial buyers may influence negotiated prices and prices in other market segments. These spillovers depend on sales mix and on how manufacturers, insurers and other market participants react.
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Could lower prices mean fewer new medicines?
It is plausible, but the size and timing of any effect are uncertain. Developing a medicine requires investment, and a lower expected return or higher investment cost can reduce the incentive to pursue research and development (R&D). CBO explained this mechanism in its October 2024 analysis. It does not mean every price reduction causes a research project to stop, or that every foregone introduction would have been a valuable treatment. Competition from clinically similar medicines and the length and terms of exclusive rights also shape the returns a company expects.
The Congressional Research Service (CRS), reporting a CBO estimate from 2022, says CBO projected the IRA would lead to about one fewer new drug introduction over 2023–2032, about five fewer in the following decade and about seven fewer in the decade after that. These are forecasts, not observed counts of missing medicines. CRS cautions that the full effects may take years to emerge as more drugs become eligible. The projections do not identify which medicines would not be introduced or establish their clinical value.
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That forecast is evidence of a potential cost to innovation, not proof that innovation effects are either absent or certain to match the estimate. It also does not resolve whether a particular price policy’s affordability gains outweigh possible effects on future research; that depends on who benefits, which products are affected, and the treatments that might otherwise have been developed.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to judge a drug-pricing proposal
For a household, a lower average price does not automatically mean lower spending at the pharmacy. When comparing a proposal or reading a savings estimate, check:
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- Which price is changing? List prices, negotiated prices, net prices after rebates, patients’ out-of-pocket costs and government spending are not interchangeable.
- Which medicines and buyers are covered? A substantial cut for selected drugs can have a modest average effect if the policy reaches only a limited share of spending.
- Who captures the savings? Savings may flow to patients, plans, public budgets or other purchasers in different proportions.
- What could change in response? Manufacturers may adjust prices, availability or investment; insurers and other market participants may also adapt.
- How certain is the innovation estimate? Projections about future drug introductions are not observed results, and the potential clinical value of medicines not developed is unknown.
CBO’s October 2024 report included several possible approaches to reducing prices; it stated that including or omitting an approach was not an endorsement or rejection. Its estimates help compare mechanisms and possible market-wide effects, but they do not settle the long-term balance between affordability and innovation.
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