Dominating Topics in Healthcare 2023 Part two of a series The US Inflation Reduction Act: A Primer on the Impacts to Pharma Manufacturers

By Tina Witte
Sr. Associate Director, Life Sciences

 

One of the most important legislative topics of the year in US healthcare is the Inflation Reduction Act (IRA), signed into law by President Biden in August 2022. 

Among the goals include reducing governmental spending on prescription drugs for Medicare. A few immediate results of the IRA include:

• Insulin now capped at $35 per month
• All recommended vaccines provided free of charge for Medicare and Medicaid patients
• By 2025, the maximum out-of-pocket amount for prescriptions will not exceed $2,000, as part of the Part D redesign

As prescription drug provisions allow the government the power to negotiate prescription drug prices directly with the manufacturers, some segments of the IRA have been subject to scrutiny and controversy by pharma:

• Limitations on the ‘annual price increases’ of prescription drugs, which should not exceed the rate of inflation: those manufacturers who sell their treatments through Medicare with price increases that outpace the consumer inflation rate will be required to pay rebates to the government.
• ‘Maximum fair pricing’ negotiations, especially for select treatments deemed to be successful (in terms of volume utilization) in Medicare Part B and D: many of these are costlier, innovative drugs, with no generic alternatives. Manufacturers who do not comply with the negotiation process face excise taxes, and/or risk their drugs being withdrawn from Medicare and Medicaid coverage. In September, the first ten drugs were announced, and new prices will take effect in January 2026. In a staged approach, by 2030 a total of 60 drugs will be selected for negotiation.
• Generics and biosimilars are excluded from negotiations. As are certain treatments for rare/orphan diseases.

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The implications of these pricing pressures, including the potential of rebate payments, will no doubt affect the forecasts for a drug’s overall earning potential across the entirety of its marketed life cycle. For instance, a section of the provision indicates these pricing dynamics may apply to drugs at least 7 (or 11 years for biologics) post-FDA approval. This may contribute to drugs being priced higher at the time of their product launch.

As the evaluation criteria for determining ‘maximum pricing’ may also evolve over time, pharmaceutical companies may need to adapt their research and development (R&D) initiatives. The IRA may influence clinical developments and leverage real-world evidence to be considered in pricing negotiations.

Beyond Medicare, another variable to be considered is how payers will respond to the increase in price transparency, and how contracting and formulary positioning will be affected.

Collectively, these nuances may impact a manufacturer’s total portfolio prioritization strategy. For many, it will be more difficult to compete in Medicare moving forward.

With the government playing an increasing role in drug price reform and cost containment, it will be vital that pharma also transform their strategies around their own portfolio compositions, therapeutic areas, pricing models, and contracting tactics as they approach business within the confines of the IRA mandates. It will also be beneficial to consider trickle-down effects to private payers and other managed markets.

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