An inflection point comes for Pharmaceutical Companies

The Inflation Reduction Act for the first time allowed Medicare and Medicaid to negotiate with drugmakers for pharmaceutical prices. It also contained a much less discussed provision regarding patent protections. The law sets different exemption times for “small molecule” drugs that can be taken in pill form and “large molecule” ones that have to be injected or infused. This has the potential to change the structure of incentives for the Pharma industry and not necessarily in a way that benefits patients.

The byzantine US market and pharmaceutical prices

It has been quite a while since George Merck in 1950 declared “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we remember it, the larger they have been.” Today’s pharmaceutical companies bear little resemblance to the chemicals-based organizations on which the sector was originally founded. But the way in which drugmakers make money can be extremely convoluted to understand, particularly the way they make money in the United States, the world’s richest market.

In a normal market, providers offer a product or service and price it for the value it believes it represents to the customer. A…