How Drug Price Negotiation Is Reshaping Clinical Trial Pipelines

Health Affairs' Rob Lott interviews So-Yeon Kang of Georgetown University about her recent paper exploring trends in biopharmaceutical clinical trials after The Inflation Reduction Act of 2022 authorized Medicare to negotiate prices for selected drugs.

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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.

A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.

Rob Lott: 00:05

Before the Inflation Reduction Act became law in 2022, we saw a robust debate about the potential for a Medicare drug negotiation program. This was a dialogue many years in the making. You had some stakeholders arguing that by not negotiating directly with drug makers, the federal government was leaving savings on the table and that this served as an unnecessary subsidy to the drug companies. Others made the case that if the government applied downward pricing pressure through negotiation, it would shortsightedly constrain profit, which would in turn reduce investment in drug innovation and ultimately lead to fewer new life saving medicines. At the end of the day, the program became law, and we've been trying to understand its true impact ever since.

Rob Lott: 01:00

And that's the subject of today's podcast. I'm here with Doctor. So Young Kang, assistant professor of health management and policy at the Georgetown School of Health. Together with coauthors, she has a new paper in the January 2026 issue of Health Affairs describing trends in biopharmaceutical clinical trials after Medicare drug price negotiation. I can't wait to hear more about, the early glimpse that her work is giving us on the impact of the Inflation Reduction Act.

Rob Lott: 01:36

Doctor. So Young Kang, welcome to A Health Odyssey.

So-Yeon Kang: 01:39

Thank you for having me. I'm so excited to be here.

Rob Lott: 01:42

And a quick note, if you don't mind, before we dive right in, for our listeners, I just wanted to mention that we're doing something new this year and recording video of these conversations, which means that in addition to listening on your favorite podcast platform, you can also watch us on YouTube. Check it out at, Health Affairs channel and let us know what you think. All right, Doctor. Kang, shall we get into it?

So-Yeon Kang: 02:09

Sounds good.

Rob Lott: 02:10

All right. So before we discuss the findings of your paper, I thought we could start with a little bit of background and maybe what feels like ancient history at this point. But the 2003 law that created the Medicare Part D program also prohibited HHS and the federal government from negotiating drug prices, directly with drug manufacturers. What was the argument for that prohibition at that time?

So-Yeon Kang: 02:38

Yeah, it's a great background question to kick us off because it goes back to the grand bargain of 2003 at that time. This wasn't just a policy choice but it was a political necessity to get the bill across the finish line. So at that time, the pharmaceutical industry was deeply concerned about adding a drug benefit program to Medicare because you know, they fear that having this universal coverage for seniors would eventually lead to sort of a European style price controls, you know, style, a single payer system and manufacturers already experienced that, the result of that aggressive price regulations and also the formulary controls, things like that. So, the non interference clause which prohibits Medicare from negotiating drug prices with the manufacturers was built around a very pro market idea. The thinking was to let the competition do the work, not government regulation.

So-Yeon Kang: 03:37

And that was seen as sort of, you know, defining feature of The U. S. System from other sort of single payer systems like elsewhere, like European countries and other Asian markets too. And there were three arguments behind this. The one is that sort of market works better and more efficient than government.

So-Yeon Kang: 03:54

And so another was like keeping some government outside who would protect the sort of innovation. And the third is sort of, you know, private plans. We do give patients more choice and options like, you know, the Part D plan marketplace too. So in theory, if all of this worked nicely, then you could have the best of both worlds, like a drug coverage and competitive pricing, but the trade off was very clear and the seniors got the prescription coverage, but we didn't get this price controls and we have this high and extremely high price, you know, in The U. S.

So-Yeon Kang: 04:28

Pharmaceutical market. And that's how we ended up with this, you so looking back some sort of feels like a deal with the devil.

Rob Lott: 04:37

Okay, well obviously with many devil deals, guess we could call it, There were a lot of regrets right afterward and onward. It seems like really from 2003 onward, there was this kind of constant debate and a lot of people arguing in favor of follow on policies that would give, HHS and the government the opportunity to negotiate. Obviously, also a potential source of savings, as well if that was ever implemented. So let's fast forward through many years of those debates. Here we are, 2022, the the drug negotiation program passes.

Rob Lott: 05:21

And, I don't wanna ask you to relitigate the debate over sort of, you know, pro or con what we predicted would happen once it was implemented, but I'm wondering if you could put us in your shoes as a researcher in that moment right after the IRA was enacted, but before the program was implemented, thinking about studying and tracking such a big new program like this, what were some of the questions that you had in mind as a researcher looking forward from that point?

So-Yeon Kang: 05:51

Sure, that's another very good question. And actually at that time I was really excited, know, about this new legislation because, you it's a historic milestone for The U. S. Patients, right? It's a big win for The U.

So-Yeon Kang: 06:01

S. Population and patients. And also I believe that for the entire health system. So, I was really excited to see this news, but also in the meantime, the big question was not about who's the winner or loser, but who was right or wrong in that debate, but we really, because I already heard about those arguments for years, but I really wanted to understand how this would actually play out in the real world, right? So this is a historic milestone but what would it be actually, it's a sort of impact on the innovation and who are sort of vulnerable to these sort of changes?

So-Yeon Kang: 06:35

So first I was really curious about where any effect would show up earliest, right? So innovation is a long game. So you wouldn't expect the changes just overnight. It doesn't happen like overnight but are there any early signals like a kind of some canaries in the coal mine like shifting early stage pipelines and clinical trial activity where companies choose to invest or something like that. So I was really curious about you know identifying the calories in the coal mine for this suspect.

So-Yeon Kang: 07:04

And then second was I also was curious about whether manufacturers would behave in a sort of uniform way because this is standard negotiation program targets a small number of, you know, high cost, high spending sort of blockbuster drugs. But not every company has blockbusters, right? And Pfizer is different from Sanofi, and Sanofi is different from AstraZeneca. So companies may respond very differently and each company has their own sort of, you know, business models and philosophy and mission. So that is some area of my interest too.

So-Yeon Kang: 07:39

And the third is that I kept coming back to sort of measurement because this is a major policy change and shock, but it's rolling out sort of gradually and selectively. So the challenge as a researcher was like figuring out how to measure and track these changes over time slowly, carefully, but also reliable way. So my mindset at that time was first I was happy, in the meantime, it was not less about like, you know, who's the winner or loser, but does this really kill innovation? But where should we really focus on and how we can find sort of meaningful early evidence to ensure the affordability and innovation?

Rob Lott: 08:20

Great. Well, you know, for all those aspiring researchers out there, let's let's take that next step from the sort of excitement about the topic and the question and how you, put that into practice as a researcher. Your paper, looked at trends in clinical trial initiations. You went all the way back to, 2015 and then looked at the period from 2015 to 2024, and you examined overall trial activity and variation by therapeutic area and manufacturer. What did you find?

So-Yeon Kang: 08:56

So in our study with Yunnan Chi, a colleague of mine at Georgetown Business School, we wanted to see whether companies are starting fewer new drug trials after Medicare price negotiation was introduced. The reason why we chose clinical trials is that again clinical trials are very expensive, right? And so to initiate, you know, the companies need money either from venture capital investors or internal financing like, you know, internal financing requires sort of lots of reviews and also the board decisions and strategic evaluations, things like that. So, when, so we thought that like, you know, when they start a clinical trial after this implementation to some sort of signal that they still see some sort of, you know, profit potential from this portfolio. So we focused on the industry sponsored clinical trials, not the NIH sponsored clinical trials.

So-Yeon Kang: 09:48

And we found that at the industry level, the clinical trial activity remained remarkably stable. So this is kind of interesting finding first and trials, no initiation, no, increased through 2021. And then, you know, during the pandemic, you know, there were some fluctuations, but afterward, you know, the pharmaceutical companies clinical trials basically resumed the sort of, you know, pre pandemic level. And it suggested like there is a sort of, you know, there is no clear evidence that of the industry wide clefts of the pharmaceutical innovation and missed in the short term. But that's not the end of the story and it doesn't mean nothing has changed.

So-Yeon Kang: 10:29

The more interesting and novel finding is that the difference across companies and disease areas. When we looked at specifically at the companies which were involved in the price negotiation with Medicare, like who actually have the skin in the game, we did see a decline in newer clinical trials. And when you looked at the companies that were not involved in price negotiations, actually that pattern didn't show up among those companies. So, it was quite interesting because you know, who have this revenue reduction immediately, they adjusted sort of, you know, their behavior, but others basically filled the gap in the overall clinical trials. So in other words, looks like the changes are more concentrated among the firms that are directly exposed to this policy change and revenue reductions rather than across the entire industry.

Rob Lott: 11:21

Gotcha. And just a point of clarification or maybe perhaps some insight from you about the meaning of that second finding of the manufacturers engaged in negotiation maybe reducing their participation. Am I correct that the actual price reduction caused by the negotiation didn't take effect until after 2024? That maybe what we're seeing is sort of the result of them projecting out to potential lower revenue, or are they envisioning that they might have less liquid funding in order to conduct a trial? What do you think was the sort of thought process for one of these drug companies that did reduce their engagement in clinical trials?

So-Yeon Kang: 12:06

Yeah, I would say that it's about certainty, right, around the sort of a projection. Because before the negotiation and the selection process, there's lots of uncertainty when they predict the future. So, our product may be selected for negotiation, but theirs may not, something like that, a speculation, but now they have certainty about their future projection. So, even though the immediate revenue reduction doesn't happen today, but usually pharmaceutical companies, you know, have prepared sort of business forecast for two to three years and they decide sort of you know their clinical trial initiations now using that kind of business forecast and this price negotiation result actually remove this little uncertainty about their business impact.

Rob Lott: 12:48

In just a moment I want to ask you about sort of where we go from that uncertainty or lack thereof but first let's take a quick break.

So-Yeon Kang: 12:57

Sure.

Rob Lott: 12:58

And we're back. I'm here with Doctor. So Young Kang talking about her new paper on trends in biopharmaceutical clinical trials after the Medicare drug price negotiation. Okay, so you talked about perhaps the most interesting finding in your paper, this idea that companies that were asked to negotiate and reduce their drug prices did reduce their participation in clinical trials. And I'm wondering, sort of, is that a reason for folks to say, see, I told you so about the program, or, is it too early to make that judgment?

Rob Lott: 13:40

How do you reconcile the findings of, your paper with the arguments that we heard in the run up to the implementation of this program?

So-Yeon Kang: 13:50

I really like this question, you know, how my research findings can reconcile this debate, you know, before the law. I just say that these findings help, would help refine it, right? They point to where continued monitoring or sort of careful evaluation are most important as the program continues to evolve. I think the way to reconcile these issues is that to recognize that both sides were partly right and now we no longer know debate whether the negotiation is important or not but we already have this now three rounds of price negotiation, right? So it's already not a third year now in the third year.

So-Yeon Kang: 14:30

So it's important to acknowledge what's happening and what's important to move forward to enhance the innovation while ensuring the affordability too. So I think, you know, the free IRA debate often frame this as sort of, you know, all or nothing outcome, but our findings suggest that instead it's something more nuanced, right? So, before the program was enacted, the stakeholders were making predictions under, as I mentioned, lots of uncertainty and some focused on sort of with potential risk innovation while others really focused on the savings. But now like you know, we need to think about what's the balance between the innovation and affordability and the savings too. And at the industry level, we don't observe the sharp or immediate sort of you know, collapse across the entire industry but also we do see there's some sort of you know, the manufacturers behavior toward their innovation activities.

So-Yeon Kang: 15:25

So, we need to carefully monitor their sort of behavior and especially focusing on the firms exposed to the price negotiation because in the future rounds of price negotiations will include more companies and more trucks down the road And it eventually unfolds to more, you know, entities, you in the ecosystem. So I think it's very important to monitor their sort of behavior, especially those not exposed to this policy.

Rob Lott: 15:53

In terms of how we evaluate the program's ongoing impact on investment and innovation, I wonder if your paper can sort of serve as kind of a founding document, if you will, or sort of a first step for researchers and policymakers going forward. What should we be watching and what questions should we be asking, perhaps inspired by your paper and by the work that researchers are doing in this space in terms of next steps?

So-Yeon Kang: 16:24

Yeah. Thank you so much for the compliment. And I wouldn't call any single paper a roadmap or a framework because it's such a compliment. Thank you so much. But I do think that our work has some notable findings and also helps clarify what's important to monitor and watch going forward.

So-Yeon Kang: 16:44

And the first would be sort of early signals in the sort of development pipeline. So, clinical trials is one of the examples, but also like, you know, preclinical activities in early stage investment or seed funding, whereas now the drug discovery by different funding entities are also important indicators for this node behaviors and investment activities. So, these tend to move, you know, approvals, but currently when we see sort of, you know, research in this space, most of the research really focus on the drug approvals or the regulatory, you know, the pathways because those inform that kind of information is publicly available, right? So, think, you know, it's important for policymakers and researchers to do a little bit more, not to examine sort of a drug discovery or even earlier stage, you know, drug development to understand sort of, you know, the early signals. And second is like, you know, who's actually exposed to the policy and who are vulnerable, not only the manufacturers, but also patients, right, who are the in terms of the therapy area, it's not about the products, right?

So-Yeon Kang: 17:47

We are talking about the price manufacturers, but actually who have this, you know, lower out of pocket spending or actual impact of the policy are patients, right? So, who are really vulnerable and who are exposed to this policy and what are the actual impact on those people and also on those products? I think that's very important, you know, to discern from the entire industry related trend. And the third point I would like to mention is that again, how companies adapt. So companies, actually I'm coming from the industry, you know.

So-Yeon Kang: 18:20

I worked in the industry for a long time and was part of the business plan and things like that. And companies and pharma companies are big organizations, right? And they do have all kinds of business and also very resilient, right? So they, of course, adjust their sort of, you know, clinical trials and investment, but in the meantime, they may invest in some sort of different kind of innovation, right? So that's something we really didn't pay much attention.

So-Yeon Kang: 18:47

And also Inflation Reduction Act also has some sort of subsidy too, so enough for the startups and early stage investment and R and D. So we need to pay attention to what kind of, you know, the strategic changes that manufacturers adapt to survive and thrive in the new environment and also to address the challenges innovation as well as affordability. But one thing I would like to emphasize is that while policy must balance incentives to foster innovation, the IRAs, you know, Medicare negotiation authority is, as I mentioned, a historic milestone for U. S. Patients.

So-Yeon Kang: 19:24

And I think the show must go on, the world must go on, right? To ensure that innovation and affordability advance hand in hand. It's not like a black or white. So I think it's the way that The US pharmaceutical industry and ecosystem thrive in the global market.

Rob Lott: 19:41

Great, well a great research agenda for the months and years ahead and good advice the show must go on Doctor. Stoe Young King. Thanks so much for taking the time to be here today and talk about your fascinating paper. Really enjoyed it.

So-Yeon Kang: 19:57

Thank you so much.

Rob Lott: 19:58

And to our listeners, thanks for tuning in. If you enjoyed this episode, recommend it to a friend. Leave a review. If you, watched this on YouTube, let us know what you think, and, hit that subscribe button. And, of course, tune in next week.

Rob Lott: 20:15

Thanks, everyone.