President Trump issued an Executive Order on April 15 directing future regulatory action to lower prescription drug prices. This order builds upon previous efforts and introduces several new initiatives to address drug affordability and access. It also includes several provisions intended to support a competitive pharmaceutical market, including steps to streamline generic approvals and support for legislation that would align the Inflation Reduction Act (IRA) negotiation timelines for small-molecule drugs with those for biologics.

A resilient and competitive generic drug market is a cornerstone of a well-functioning pharmaceutical system. Generics play a crucial role in driving down costs, increasing access, and ensuring long-term sustainability of healthcare spending. According to a report from the Food & Drug Administration (FDA), a single generic competitor can lead to a 39% net price erosion, while six or more generic competitors can drive down net prices by more than 95% compared to brands, thus delivering savings not just for the healthcare system, but also directly for patients at the pharmacy counter.

Impact of Medicare Drug Price Negotiation on Generics

The generic market is under increasing pressure amid ongoing supply chain issues and tariff risks, but emerging dynamics from the IRA may also create new challenges. The Centers for Medicare & Medicaid Services (CMS) selects drugs for negotiation based on total Medicare expenditures. Biologics become eligible for selection 11 years after their first FDA approval, while small-molecule drugs become eligible after seven years. Once the negotiation process concludes, these drugs will be available to the Medicare program at a maximum fair price (MFP) until a generic or biosimilar enters the market.

CMS is currently undergoing its second round of price negotiations with the manufacturers of 15 selected drugs for Initial Price Applicability Year (IPAY) 2027. Avalere Health estimates that as many of as 10 of the 15 drugs may have a generic come to market after the MFP is finalized, but either before or soon after the prices become effective in January 2027. If a generic product launches to compete against a brand-name drug that has already had a new lower price set by CMS, its ability to gain market share or justify entry at all may be compromised. In this scenario, generics are not only competing with a brand, but also with a government-set price, making it difficult to recover costs, invest in manufacturing, or sustain production.

EPIC Act Provisions and Stakeholder Responses

In March 2025, the Ensuring Pathways to Innovative Cures (EPIC) Act was introduced in the US Senate (and also in the House as H.R. 1492) to match the eligibility criteria of small-molecule drugs with biologics so that all drugs would have 11 years on the market before they could be selected for negotiation. Proponents argue that the threat of price negotiation earlier in the timeline for small-molecule drugs will stifle interest in small-molecule drug development and lead to fewer innovative medications for patients. President Trump’s support for removing disincentives for small molecule development may significantly increase the likelihood of this policy change. Opponents view the EPIC Act as a win for manufacturers that would diminish the government’s ability to generate savings. If passed, however, the law could also bolster generics and competition, ultimately resulting in savings for the government, Part D plans and patients.

Medicare Spending Impact

Avalere Health assessed the CMS Drug Spending Dashboard to estimate the expenditures associated with drugs already selected for IPAYS 2026 and 2027 and those projected to be selected in later years under both current law and under the proposed EPIC Act. Avalere Health then compared the share of gross Medicare spending that could be impacted by negotiations under current law with the share of gross spending that would be impacted if small molecules become ineligible for selection at 7 years following initial approval. Based on 2022 spending, the analysis found negligeable difference in share of Medicare spending, mainly because if some drugs get a longer timeline before selection, they will be replaced by other products from the list of highest spending drugs in Medicare (Table 1).

Table 1. Percentage of Total 2022 Medicare Gross Drug Expenditures Associated with Drugs Selected/Projected* for Selection, by IPAY** and Policy Scenario, in Relation to Total “Negotiation Eligible” Expenditures for Products with >$200M in Gross Medicare Spending, 2026–2034

*Based on Avalere Health policy modeling ** Spending includes both newly selected drugs and previously selected drugs subject to MFP in subsequent years

Overall, delaying eligibility for small-molecule drugs to be selected for negotiation may reduce the potential for savings as drugs with higher expenditures will need to be selected later. However, other small-molecule or biologic drugs with high expenditures will be selected in their place, which largely maintains the eligibility pool for negotiation. As a result, aligning small molecule eligibility timelines with biologics may support innovation in small molecule drug research without a substantial reduction in the overall savings for the Medicare program.

Part D Plan Impact

Medicare drug price negotiation also has implications for plan coverage and patient access. Specifically, Medicare Part D plans are required to cover all selected drugs, including all dosage forms and strengths. CMS plans to review Part D plan formularies for greater restrictions being placed on selected drugs compared to similar, non-selected drugs, which plans must then justify.

Broadly, Part D plans will have to consider MFPs of selected drugs when conducting formulary negotiations with both manufacturers of selected drugs and manufacturers of competitor drugs. Depending on resulting MFPs, plan economics could be negatively impacted if CMS did not generate significant savings relative to what could be negotiated in the market. Yet Part D plans are required to cover negotiated drugs even if a generic is imminent. Delaying negotiation for a subset of small molecule drugs could therefore restore plans’ ability to use generic entry to drive significant savings.

What’s Next

As policymakers weigh the full implications of the EPIC Act and other reforms, considering the impact on the generic drug market must remain a priority. With expertise in policy, evidence strategy, and market access, Avalere Health’s multidisciplinary team can help manufacturers and payers understand the nuance and complexities of interactions between IRA drug pricing provisions and proposed and final policies. Connect with us to learn more.

Methodology

Avalere Health identified drugs eligible for selection based on a proprietary list that evaluates drugs based on their initial FDA approval date, projected biosimilar and generic entry dates, other factors in line with IRA statute, and CMS guidance. Based on the timelines that CMS established in guidance, if a generic comes to market after an MFP is established, the MFP remains effective for the first initial applicability year. Avalere Health’s estimates are based on 2022 data and the analysis did not project revenue growth for the analyzed therapies.