Pharmaceutical executives who like their news sorted cleanly into good and bad piles will struggle with the Congressional Budget Office (CBO) letter that landed on July 29. Almost every finding offers something to cheer and something to dread, frequently in the same sentence, and this week we’ll work on teasing them apart.
Watchdog is pessimistic by nature, so we’ll start with the good. The Inflation Reduction Act (IRA) price “negotiations” that manufacturers spent three years dreading are clawing back less money than the forecasters promised, so the squeeze is, for now, gentler than advertised.
Now brace for the bad. Overall Part D spending has blown so far past its projections that the program is starting to feel like a budget problem in search of a villain, and the pharma industry has been assigned that role before.
A Blame Game That Pharma Can Win
CBO acknowledges that it “significantly underestimated” how much per-enrollee costs would rise once the Part D redesign took effect, and that plan bids for 2026 came in well above its estimate. Where CBO had expected costs per enrollee to rise about 5 percent (close to the program’s long-run pace), plans built their 2026 bids around a 35 percent increase.
Importantly for pharma, CBO assigns the blame elsewhere, pinning the benefit redesign rather than the negotiation program. The redesign capped what beneficiaries pay at the pharmacy counter and moved risk off the government’s old reinsurance backstop and onto the plans. When plans carry more of that risk they price it into their bids, the government’s subsidies rise to meet those bids, and utilization edges up as well, because a lower out-of-pocket ceiling is, by design, a reason to fill more prescriptions, especially for high-cost specialty drugs.
The negotiation program, the provision that generated most of the industry’s alarm, has so far underperformed its own billing. CBO had modeled the first negotiated drugs shaving close to half off net prices; the realized discounts came in shallower, and the office has widened its expected range to match. Inflation rebates disappointed for a less intuitive reason, which is that inflation ran hot, raising the benchmark that determines what manufacturers owe and shrinking the rebates in the process. The mechanism built to penalize price increases was outpaced by the increases.
The Half That Worked
None of this means the law failed at its most visible task. A big part of what beneficiaries actually notice, what they pay at the counter, is performing roughly as intended. By last September, about 78 percent of brand-drug fills for standalone Part D enrollees carried no patient cost-sharing at all, up from roughly 62 percent two years earlier. The government still expects the first ten negotiated drugs to save beneficiaries around $1.5 billion out of pocket and Medicare about $6 billion a year.
The legislation created a growing tension for Medicare. The IRA is taking lower beneficiaries’ pharmacy bills (popular and working) while adding to the federal tab (unpopular and now documented). For manufacturers the near-term math is favorable and the long-term optics are not, because a program that costs more than promised is a program that attracts reformers, and reformers tend not to arrive looking to reward those faring well under the current system.
Reform options are somewhat limited, for a variety of reasons. An out-of-pocket cap, once granted, is close to impossible to withdraw, which means the redesign is a fixture even as its costs draw fire. Any manufacturer hoping the structure collapses under its own price tag should adjust that expectation, because the expensive part is bolted to the beloved part.
PBMs As A Silver Lining
The reformers have, in fact, already circulated their outline. In February, Finance Committee Democrats sent a “Dear Colleague” letter sketching the next drug-pricing agenda: let Medicare negotiate more drugs and negotiate them sooner, fold international reference prices into the calculation, end what they call “blockbuster bailouts,” and press harder on the pharmacy benefit managers (PBMs) they call responsible for hoarding the savings.
There are two silver linings in that dark cloud for pharma: PBMs are targeted, and none of the other ideas will be implemented anytime soon. Even if Democrats retake Congress in the midterms – forecasters currently favor them in the House and rate the Senate a coin flip – they would still need to work out legislation with President Trump, and it’s hard to see either side wanting to offer the other anything that would resemble an accomplishment.
The realistic consequence of November is more hearings, more letters, and more unflattering charts, not new price controls.
The genuine legislative window does not reopen until one party holds the House, the Senate, and the presidency at once, which is a 2028 question. Pharma should prepare for oversight, not legislative action, after the midterms.
Still Holding A Grudge
How to approach legislating, when it comes, is a trickier question. In politics, cooperating often buys a truce rather than a friendship. During the Affordable Care Act debate, the branded-drug lobby struck a well-documented bargain with Democrats, committing roughly $80 billion over a decade and funding advertising for the reform, in return for assurances that Medicare negotiation and drug importation would stay off the table.
That bargain held until unified Democratic control returned, at which point the negotiation authority the industry had struck a deal to prevent became the marquee provision of the IRA. When people don’t like you, nothing is ever good enough. (Pharma can perhaps take some solace in the fact that the assurgent wing of the Democratic party seems to hate all large corporations, not just them.)
Where Both Parties Point The Finger
The Republicans who requested the CBO letter received it, unsurprisingly, as vindication. Their reply, a coordinated statement across three committees, treats the numbers less as the basis for legislation than as proof that the forecasters missed and the other side oversold.
Democrats might have spun the CBO’s figures as evidence that pharma needs to pay steeper discounts. The GOP was silent on that issue and instead reserved its sharper language for insurers and PBMs, the “health care empires” it accuses of skimming the margin. To paraphrase Homer Simpson, it is fun to get people to hate the same things you hate, and on the subject of middlemen the two parties have located a shared target. The pharma industry should be proud of its efforts to create this rare moment of bipartisanship.
Below is a chart offering the most important talking points from the letter.
See you tomorrow.