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Breaking Down the Inflation Reduction Act: How It's Shaking Up the Pharmaceutical Industry

Written by PFG MedComm Team | May 18, 2023 8:05:35 PM

Inflation affects nearly all goods and services on the market, including drugs and healthcare products. This is the first of a series of posts focused on the Inflation Reduction Act and the resulting impact on the healthcare landscape, specifically the pharmaceutical industry.  

The Inflation Reduction Act (IRA), signed into law in 2022, hopes to reduce the rate of inflation across a number of goods and services. In a perfect world, slow and steady inflation can actually be good for the economy as it gives the market time to adjust prices and incomes. However, when inflation happens rapidly and incomes are not adjusted to reflect that, consumers lose purchasing power. When inflation occurs in the medical industry, patients are unable to get the care they need to lead healthy lives. In some cases, this could mean the difference between life and death. 

The IRA will allow the government to work with and regulate the pharmaceutical industry to lower overall costs of drugs. The summary of the act from the Senate.gov website provides a bulleted list of the key items that the bill addresses – ranging from deficit reduction, to lowering energy costs, and changes to the tax code. The two big healthcare-focused items in the IRA have to do with prescription drug pricing, and health care premiums (for ACA plans).  

Let’s review the prescription drug provisions in the order of implementation: 

2023 

  • Penalties on drug manufacturers if the price increases of drugs for Medicare beneficiaries exceed inflation  
  • $35 limit on monthly cost sharing for insulin (for Medicare beneficiaries) 
  • Changes to adult vaccine access - Elimination of cost-sharing for adult vaccines (Medicare Part D) and improved access (Medicaid and CHIP)  

2024 

  • Changes to Medicare Part D, including caps on out-of-pocket spending for enrollees and other change to plan design 
  • Expansion of the Medicare Part D Low Income Subsidy (LIS) program 

2026: Prescription drugs covered under Medicare Part B and Part D will be up for price negotiation. (Note that there are exclusions and a criteria of considerations for these negotiations when getting to a “maximum fair price” for a drug. Check out this in-depth brief from the Kaiser Family Foundation.) 

Though it is at the bottom of the above list, let’s start with the prescription drug price negotiations. Even though this is technically a 2026 implementation, the negotiation process takes 2 years (which means that from the company perspective, the planning should have already started). Furthermore, the law has a very clear directive on how comparative effectiveness research can be interpreted, that is, extending life of an elderly, disabled, or terminally ill patient is of lower value in comparison to a younger, non-disabled, or non-terminally ill individual.  

While the IRA prescription drug provisions are currently targeted towards a specific list of drugs, it is safe to assume the downstream effects will impact most drugs. While the overall intention of the IRA is to mitigate the impact of inflation on average Americans, there are quite a lot of consequences that come with sweeping, generalized policy changes.  

For Medicare Part D beneficiaries, there will likely be significantly more utilization management, which means more hoops to jump through before having access to branded prescription treatment options.  

When a new drug comes to market, the research does not end there – follow-up and post-market studies offer valuable insight into how a drug performs in the real world. On one hand, this research can lead to other indications, and expands the use of the same drug for other disease states/conditions. On the other hand, real-world evidence can also provide insight into safety considerations that are outside the scope of a randomized controlled trial. The IRA’s limitations do not account for the investment required for post-market research, so the likelihood that many of these types of programs will be scaled back is high.  

So, what can be done now? 

Acknowledge: While the intentions of the IRA are in the right direction, there are going to be quite a lot of changes and, right now, so much uncertainty.  

Stay up to date: Many organizations are watching the implementation of the IRA closely and publishing insights regularly.  

Strategic changes: Evolving the way the value of a drug is communicated to account for all the new considerations that market access stakeholders now have will be essential to differentiating. 

Look out for more on the IRA and the evolving landscape in upcoming posts in this series. 

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