In a new insight, AAF President Douglas Holtz-Eakin reviews the key health care provisions of the Inflation Reduction Act and walks through what one can learn from the first round of the maximum fair price (MFP) “negotiation” process between Medicare and drug manufacturers.

Key points:

• The MFP process has both a traditional statutory price cap as well as a novel price-control feature: the threat of a confiscatory excise tax for those manufacturers that do not offer Medicare’s proposed MFP.
• Though disguised as voluntarily determined pricing, the MFP process is opaque, and the corresponding threat of its punitive excise tax reveals the damaging nature of its price controls, as was demonstrated during the first year of the MFP process.
• Lawmakers, many of whose fondness for price controls is long-standing, may view the “negotiation” of MFPs as a promising approach to impose price controls in many other markets.

Read the analysis