In a 51-50 vote, Democrats passed the Inflation Reduction Act (IRA), which is a pared down version of the Build Back Better Act.
Among other climate and tax-related provisions, I, as a healthcare freak, was obviously focused on the healthcare stuff.
Lots of health policy experts are calling the IRA a huge breakthrough when it comes to drug pricing regulation.
Healthcare Stuff in the Inflation Reduction Act
Direct Price Negotiation for Drugs: When Medicare Part D passed in 2003, lawmakers banned Medicare from being able to negotiate drug prices since it would be too similar to every other developed country in the world.
- With the IRA, Medicare can now negotiate drug prices on the oldest, largest drugs that still don't have any competition starting in 2026. Negotiation is limited to the 10 largest drugs and will expand from there each year (20 total drugs by 2029, from both Medicare Part B and D).
- To be eligible for negotiation, a drug must (1) comprise a high proportion of Medicare spend, (2) not have any competition (e.g., biosimilars or generics, and (3) be 9+ years post-approval (depending on type of drug).
- The IRA mandates minimum discounts (which the IRA refers to as the 'maximum fair price') of these eligible drugs.
- Years 9-11 = 25% min discount
- Years 12-15 = 35% min discount
- Year 16+ = 60%
List Price Inflation: Drug list prices cannot increase faster than inflation for drugs that Medicare buys; otherwise they'll have to pay a rebate starting in 2023.
Out-of-Pocket Spending: Out of pocket drug costs for Part D will be capped at $2,000 for beneficiaries starting in 2025, which creates huge savings for beneficiaries but likely will result in much steeper costs for Medicare's share. This also seems advantageous to drugs priced in the previous out-of-pocket range ($10,000). Along with capping OOP spend, Part D premium growth would be capped at 6% starting in 2024.
ACA Subsidies: The IRA will extend ACA subsidies currently in place thru 2025, a $64B provision.
And finally…what's notably missing from the final bill:
Private Equity Escapes Unscathed: While the original bill removed the carried interest loophole, the final bill will let carried interest survive, which is a major win for private equity players. If the loophole had been eliminated, it MIGHT have incentivized longer hold periods for PE players in healthcare.
Insulin Caps: A $35 cap on insulin prices for private insurers (note - Medicare beneficiaries still receive this perk) didn't make it through to the final IRA bill, as it was considered out of scope for the reconciliation package.
Big Pharma's Big Beef.
As with most things (even when I'm wrong or off-base) I want to bring both sides of this bill to your attention. PhRMA isn't a fan of the sweeping changes to the industry. According to STAT, the pharma lobby spent 7+ figures - more in 2022 than any other industry - in an attempt to stifle the drug pricing changes in the IRA.
PhRMA CEO Stephen J. Ubl called the drug pricing plan a 'tragic loss' for patients:
"Today's vote may feel like a political win for Democrats, but it's really a tragic loss for patients. This drug pricing plan is based on a litany of false promises. They say they're fighting inflation, but the Biden administration's own data show that prescription medicines are not fueling inflation. They say this is "negotiation," but the bill gives the government unchecked authority to set the price of medicines. And they say the bill won't harm innovation, but various experts, biotech investors and patient advocates agree that this bill will lead to fewer new cures and treatments for patients battling cancer, Alzheimer's and other diseases."
So in short, the main arguments seem to be stringent government price control (since it's less of a negotiation and more of a "you get what we decide.") leading to less innovation. PhRMA is also arguing that net drug prices are decreasing when factoring in rebates and discounts/refunds and are therefore deflationary, therefore not contributing to inflation.
On the plus side, Big Pharma will have 3 years to digest the legislation, continue to lobby, and plan for the IRA's implementation. That's a hell of a lot of Drug Channels content, too.
Madden's Musing.
Drug price negotiation/control isn't a new concept, even in the U.S. The Veterans Affairs has been able to negotiate drug prices for a while and has its own formulary. Plus pretty much every other developed country in the world negotiates drug pricing. So it's not like this policy is coming out of left field or anything. Medicare/Gov spending is about 20% of Big Pharma's revenue mix, so while it's significant, it's not insurmountable.
Eligible drugs are limited, which makes me think that the actual impact of the law is overstated - for now. The big thing happening here is the government putting its foot in the door and setting the precedent for continued and expanded scope of negotiation in 2030 and beyond.
While I understand the argument related to innovation, drug makers will still have plenty of flexibility on initial price and will undoubtedly find other ways around the regulations in the classic cat and mouse game.
Open-Ended questions I have:
- Will these changes trickle out to the commercial market? To what degree?
- How will the IRA affect physician oncology compensation (drug dispensing / infusion ancillaries) and the 340B program?
- Will the IRA and Medicare drug negotiation push drug makers into more creative, value-based arrangements? How will drug pricing models shift as a result of the legislation? I would assume that the structure would incentivize higher upfront list prices that the government would then try to negotiate down.
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