Rethinking Medicare Price Negotiations: Innovation, Insurance Reform, and Patient Access

In a recent discussion, John Stanford, executive director at Incubate,reacted to the Centers for Medicare & Medicaid Services’ (CMS) decision to expand Medicare drug price negotiations to include Part B medicines for the first time. The third round of selected drugs broadens the scope of the Inflation Reduction Act (IRA)’s pricing provisions beyond Part D retail prescriptions to physician-administered therapies, such as infused drugs typically reimbursed under Part B.

According to Stanford, the expansion represents a significant shift because it introduces new stakeholders—particularly physicians—into the policy’s financial impact. Part B drugs are commonly administered in clinical settings, where providers purchase and are reimbursed for medications under a bundled payment structure. He suggested that reimbursement changes tied to negotiated prices could create financial pressure for physician practices, although the precise operational effects remain unclear.

The second major concern raised relates to what Stanford described as structural disincentives for small-molecule drug development, often referred to by critics as the “pill penalty.” Under current law, small-molecule drugs become eligible for price negotiation sooner than biologics. Stanford argued that several drugs included in the latest selection round would not have qualified if the eligibility timelines were aligned.

Citing a recent survey conducted by Incubate, who represents the patient, corporate, and investment communities, he stated that 80% of investors report decreased interest in funding small-molecule development due to the policy framework. Stanford also contended that this dynamic may dampen capital allocation toward certain therapeutic modalities and could have broader implications for Us competitiveness in biopharmaceutical innovation.

While supporters of Medicare negotiation cite cost savings for beneficiaries and the federal government, critics argue the policy may influence research and development priorities. The long-term effects on provider economics, drug pipelines, and global competitiveness remain areas of active debate as implementation progresses.

Stanford also comments on the potential policy adjustment that could balance cost containment goals with continued life sciences innovation and investor confidence, and much more.

A transcript of his conversation with PC can be found below.

PC: Supporters of Medicare price negotiations argue that they improve affordability and access. In your view, what policy adjustments would balance cost containment goals with continued life sciences innovation and investor confidence?

Stanford: Most importantly, and I speak on behalf of the entire early-stage ecosystem, a drug that doesn't make it to a patient is not a successful drug. We have to have conversations about affordability and accessibility. Where I'd push back against some of those allies who have been proponents of the price controls in the IRA is, have they actually made a meaningful difference to patients? And the answer is no. Even with price controls in place, patients still can't necessarily access those specific medicines, and it's because we fundamentally ignored reforming the insurance system.

The government may save some money—and they are saving some money with these price controls in place—but it's important to distinguish between the government benefiting and patients benefiting. There were other good things in the IRA, such as capping out-of-pocket costs for Medicare Part D. We would say, why cap it? Eliminate them. There is no reason for there to be out-of-pocket costs attached to a chemotherapy drug. No one is electing to go get that drug that they don't need.

It’s ridiculous for insurers to suggest that we need copayments or coinsurance. But I go even further, because when I sit with progressive Democrats and we have exactly this conversation, I like to give them an example. Let's think back to Harvoni and Sovaldi. Let's say we had price controls back then, and we have this incredible cure for hep C, we kind of blow past, wow, we have a cure to, I don't like that it costs $100,000. Let's say Bernie Sanders had his way. Fifty percent cut to the cost of medicines, all just with a flick of a wand. We have now cut medicines cost 50%.

Well, Gilead would be out of business. I don't know their profit margin off the top of my head, but all of them are 10% to 15%, so Gilead couldn't stomach that. Gilead goes out of business. But the patient, let's say they have a 10% coinsurance through their insurer. Their drug when Gilead was in business—$100,000, 10%—would have cost them $10,000. Even with the Bernie Sanders most extreme version put Gilead out of business, it'd now be down to $50,000, and that patient would be $5,000 out of pocket.

Well, what do we know about American patients? We know they don't have $5,000, and they definitely don't have $10,000 to spend on medicines. And so even if you gut this industry, cede it all over to China, put these iconic manufacturers and small biotechs out of business, patients still couldn't access their medicine, because insurance doesn't act like insurance anymore, and so as long as we have copays that are extreme, deductibles reaching $20,000 for a family of four, and coinsurance, we can never get to a place where patients can meaning meaningfully access medicine the way the medicine’s inventors and doctors want.

We want to see insurance act as insurance. Your doctor prescribes you a drug, it should be covered, full stop. The FDA should function to make sure that the drugs that are approved work and are safe. We have over-complicated this system for no good reason, besides padding the vertically integrated insurer companies’ profits.