On January 20, 2026, Health Insurance company CEOs were called before Congress to talk about the rising costs of healthcare, with a focus on the role of competition for lower prices. The CEOs noted that promoting the use of biosimilar medicines is an approach they are using to cut costs. This makes sense as biologic drugs are nearly half of U.S. spending on drugs. Billions in premiums and out-of-pocket costs can be saved with biosimilars. This underscores the importance of examining the Inflation Reduction Act and its impact on biosimilar drug development and competition.
The next selection of medicines for 2028 price controls is coming, which now includes physician-administered infusions in addition to self-administered drugs. This is likely to include more biologic medicines. By setting the prices of biologic drugs, the federal government is limiting market competition. This isn’t a new lesson; there are multiple examples, from housing to food and gasoline, where federal price controls lead to shortages, as low prices create demand but no willing supplier. Avoiding drugs where there is a pipeline of established biosimilar competition not only saves the bureaucratic cost of price setting, but it also preserves the market and encourages competition.
Biologic drugs are different from chemical-based pills; they cannot be copied exactly. When the exclusive right to market a biologic medicine, or drug made from living cells, has expired, another firm can develop and seek approval for a “biosimilar”. Approved biosimilars should have no clinically meaningful differences relative to the biologic. Biosimilars are half the cost of the innovator; their presence also pressures the innovator biologic to reduce its costs with discounts to insurers. Multiple biosimilars drive down costs more than one biosimilar.
While FDA approval for biosimilars is less complex than for a new drug, biosimilars cost hundreds of millions to develop. Capital investment in biosimilar development occurs when there is a reasonable expectation of a financial return on that outlay. Large markets attract more investment in biosimilars, because there is more money to be gained by taking the market away from the innovator biologic. Multiple biosimilars create competitive pressure on prices for the long term and alleviate the risk of shortages.
Government price controls, including the “Medicare Drug Price Negotiation Program,” are costly to administer and discourage competition. Price controls create a smaller market. Now, one could argue that it doesn’t matter whether price controls or competition lowers prices, which may be true in the short run but does not hold up in the longer term.
Inflation Reduction Act price controls for Medicare selected drug are in place and decline over time until a biosimilar is approved and also has sufficient evidence of use for the government to determine that there is “bona fide” marketing (a term that has no clear definition). So, the presence of one approved biosimilar with use in Medicare would eliminate the federal price control on the biologic.
Consider the case where a biosimilar to a biologic drug that has been selected for a price control in Medicare enters the market. The biosimilar price would be below the biologic with a price control to gain market share; that’s great in the short term. But, fewer biosimilars would follow and enter the market relative to a biologic without a price control, as the financial return is less in a lower priced market. In this case, just a few biosimilars would own the market at prices that are higher than they would have been without the price controls on the biologic had more competitors entered. That’s not great in the long term.
Biologic medicines are often more costly to the Medicare beneficiary relative to a biosimilar. Consider Humira, with ten approved biosimilars including one called Amjevita, which had a list price 80% below Humria’s in 2023. Amjevita was offered with a co-pay of $43-$45 on most Medicare formularies, while plans charged a coinsurance for Humira of over $2500. Moreover, of the biologic drugs selected for price controls in 2026, are require coinsurance, putting their monthly out of pocket costs into the hundreds or even thousands of dollars.
Market-based drug prices are often high. But, competition reduces costs by more than half for transformative treatments including for hepatitis C, obesity, diabetes, and heart disease. While drug market competition may be imperfect, the expensive and bureaucratic process of implementing price controls is deeply flawed, leading to shortages and discouraging investment in drug development, including less costly medicines like biologics. At a minimum, price controls should be avoided for drugs when it hinders biosimilar entry, which is one of the most promising ways to reduce drug costs.
Kirsten Axelsen is a policy advisor to life sciences companies.
