US President Donald Trump has signalled a major policy shift by directing his administration to address a contentious provision in the Inflation Reduction Act of 2022, which pharmaceutical companies say unfairly disadvantages small molecule drugs in Medicare price negotiations.
In a sweeping executive order issued on Tuesday, Trump instructed Health and Human Services Secretary Robert F. Kennedy Jr. to collaborate with Congress to amend the law’s treatment of small molecule drugs—such as pills and tablets—compared to biologics. Under current rules, small molecule drugs become eligible for Medicare negotiations nine years after approval, whereas biologics are exempt for 13 years.
The pharmaceutical industry refers to the discrepancy as the “pill penalty”, arguing it stifles innovation and diverts investment away from widely used treatments. Industry data indicates that early-stage funding for small molecule development has plummeted nearly 70% since the legislation was enacted.
“This discrepancy threatens to distort 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 large patient populations,” Trump stated in the order.
While the directive stops short of changing the law, it proposes working toward “aligning” the timelines, potentially extending the eligibility period for small molecule drugs to match that of biologics. This move has garnered bipartisan interest, with North Carolina lawmakers introducing related legislation earlier this year, supported by a University of Chicago study forecasting 188 fewer small molecule drugs under the current regime.
Stifel analyst Paul Matteis noted the development was “a clear win for the industry”, while warning that broader drug pricing debates could still pose risks.
The executive order also proposes updates to Medicare pricing rules, increased drug importation, and new steps to combat anti-competitive practices in the pharmaceutical sector.