Trump executive order targets Inflation Reduction Act’s ‘pill penalty’

US President Donald Trump’s new executive order comes with a raft of promises aimed at lowering the cost of prescription drugs and overturning the Inflation Reduction Act’s ‘pill penalty’.

Three months into his second term, US President Donald Trump has issued a new executive order titled, “Lowering Drug Prices by Once Again Putting Americans First.” Among its key priorities, ranging from improving access to discounted insulin to increasing transparency around pharmacy benefit manager fees, is addressing what the administration views as a critical flaw in the Inflation Reduction Act (IRA): the so-called ‘pill penalty’ and treatment of small-molecule drugs under the Medicare Prescription Drug Price Negotiation Program.

Signed into law by President Joe Biden in August 2022, the IRA introduced the Medicare Prescription Drug Price Negotiation Program, which permits Medicare to negotiate directly with drug companies on the prices of certain high-cost prescription drugs. The new executive order instructs the Department of Health and Human Services (HHS) to work with Congress to amend the program, focusing in particular on the timeline disparity between small-molecule drugs and biologics.

While the order acknowledges, “the commendable goal of reducing the drug prices Medicare and its beneficiaries pay,” it argues that the current structure undermines investment in small-molecule innovation by subjecting these drugs to price negotiations significantly earlier than biologics. As noted in the order, President Trump warns that the ‘pill penalty’ risks distorting innovation by, “pushing investment towards expensive biological products, which are often indicated to treat rarer diseases, and away from small-molecule prescription drugs, which are generally cheaper and treat larger patient populations.”

Under the IRA, small-molecule drugs are subject to Medicare price-setting 7 years after FDA approval, with negotiated prices taking effect at year 9. In contrast, biologics are exempt for 11 years, with price controls beginning in year 13. Industry groups argue that this gap is already shifting investment patterns, disadvantaging the development of small-molecule therapies that have historically provided patients with more affordable and accessible treatment options.

Recent data appears to support these concerns. A new analysis by healthcare consultancy Vital Transformation, published the day before the executive order, found that investment in small-molecule R&D has declined by 68% since the IRA was enacted and by 74% for diseases that primarily affect Medicare patients. Additional evidence from a National Pharmaceutical Council study highlights early signs that the IRA may also be dampening investment in post-approval clinical development. Meanwhile, a policy brief from the University of Chicago estimates that the law could result in 188 fewer small-molecule treatments and indications reaching the market – potentially translating into a loss of 116 million life-years.

The executive order has sparked mixed reactions. Advocacy group No Patient Left Behind welcomed the move, arguing that eliminating the pill penalty would restore market-based incentives and empower smaller US biopharma companies to develop affordable treatments. In contrast, Merith Basey, executive director of Patients for Affordable Drugs, called the proposal, “a clear giveaway to Big Pharma,” warning it would delay access to lower prices for the most commonly used medicines and protect “exorbitant profits.”

Whilst the executive order does not specify a timeline for HHS to work with Congress on overturning the pill penalty, legislative efforts may already be underway. Earlier in the year, a new bipartisan bill – the Ensuring Pathways to Innovative Cures (EPIC) Act – was introduced to address the perceived disparity in the IRA.

Much has been written about the order’s intent since its release on April 15, with many views shared across social media. A notable analysis comes from Rachel Sachs, JD, MPH, associate professor of law at Washington University in St Louis, writing in Health Affairs Forefront. Sachs points out that while the EPIC Act has yet to receive a public score from the Congressional Budget Office (CBO), it would likely increase costs for both the government and Medicare beneficiaries. She raises a key policy question: can a measure that delays price negotiation truly be reconciled with an agenda focused on affordability?