A Q&A on the IRA

Since late summer, three letters have been the topic of serious discussion in the pharmacy benefits world, and they’re not P, B and M. We’re talking about the IRA—the Inflation Reduction Act.

At this point we can only speculate on the impact, but here are the IRA’s key provisions relative to prescription drugs:

  • The federal government will begin negotiating prices directly with drug makers for some top-selling drugs covered under Medicare Parts B and D.
  • Drug companies will be required to pay rebates if prices rise faster than inflation for drugs used by Medicare beneficiaries.
  • The 5% coinsurance rate for Medicare Part D participants in the Catastrophic Coverage phase will no longer exist.
  • A $2,000 cap on Part D out-of-pocket spending is on the way.
  • So is a $35 monthly limit on out-of-pocket spending for insulin products for all Medicare beneficiaries.

For perspective, we sat down with Jennifer Wagner, RxSS Director of Public & Government Affairs, who’s been tracking the legislation and industry reaction to it from inside the Beltway.

Who are the perceived winners with the IRA?

Jennifer Wagner, director of public and government affairs for Rx Savings Solutions
Jennifer Wagner
Director of Public & Government Affairs

Only time will tell how everything shakes out, but based on industry reaction and conversations with key stakeholders, we can make some preliminary calls.

Projections indicate the IRA will reduce government spending by roughly $100 billion over 10 years. On the surface at least, Medicare and the federal government come out as winners here.

Perhaps the biggest winners are Medicare beneficiaries, especially those who struggle to afford out-of-pocket (OOP) costs and rising premiums. What’s not clear is how many will actually see lower OOP costs as a result of these drug price negotiations. That will ultimately depend on which drugs are subject to Medicare’s maximum fair price (MFP) and whether beneficiaries are taking those drugs. It’s also difficult to accurately predict how many will benefit from the cap on Part D OOP spending and the elimination of coinsurance above the Catastrophic Coverage threshold, since present estimates do not account for increases in the number of Medicare eligibles or utilization and spending due to increased affordability of medicines. Safe to say the number is in the millions.

Which parties or interests believe they’ll be hurt by the IRA?

With the cost burden now essentially shifting from the beneficiary to the plan, Part D plans are going to be on the hook for more. In that sense, they certainly take a bit of a loss from this one, but rest assured, they will be looking for ways to make up for it.

It remains to be seen how pharmaceutical manufacturers will respond, but the IRA is certainly a… big pill to swallow for them. Manufacturers may have certain products selected for government negotiation and face an excise tax for non-compliance. They also will be required to pay rebates to the federal government should they raise list prices faster than inflation (another win for Uncle Sam).

It’s reasonable to expect that, in the face of lost revenue, manufacturers will look for ways to recoup. The hope is we won’t see a reduction in research and development, which would hinder future innovation. More likely, we’ll see drug price increases elsewhere.

The private insurance market was left out in the cold with this legislation, with no protection from any cost shifting that may occur. Many hope these price negotiations and inflation caps on the Medicare side may deter overall price increases year to year. But private plans and self-insured employers are skeptical, believing that any spillover effect will take the form of cost shifting. The commercial market is aware of the potential for higher drug launch prices across the board and will be watching claims data very closely.

Many patients and payers have been looking to biosimilars to drive down costs for expensive biologics like Humira. Will the IRA change the outlook of the biosimilar market?

It’s hard to predict, despite a lot of industry chatter about the topic. A special rule within the IRA allows for a delay in the selection and price negotiation of a biologic for up to two years if there is a high likelihood that a biosimilar will be licensed and marketed within that timeframe.

At first glance, this looks positive for the biosimilar market—the IRA seems to acknowledge the cost-saving potential of these drugs and grants them their shot at market success. Now for the nuance…

Some industry experts suggest that reference product manufacturers may ultimately prefer risking biosimilar competition than eligibility for Medicare price negotiations and therefore might even alter patent and litigation strategies to encourage biosimilar entry. We may even see “pay-for-launch” agreements take shape between reference product and biosimilar manufacturers. Alternatively, brand manufacturers may decide to launch their own non-interchangeable biosimilar versions which would, in effect, deter other manufacturers from taking other biosimilars to market.

Does the IRA reduce the need for price transparency tools for Medicare populations?

While the IRA could result in seniors with Medicare saving thousands of dollars a year, there’s certainly more savings to be garnered from price transparency tools. Given the shifting cost burdens, Part D plans could stand to reap the most savings from price transparency tools in a post-IRA world. Plans will want to do a better job of keeping beneficiaries within the OOP phase or under $2,000 per year in spend—a strategy helped by price transparency tools that encourage cost savings and adherence.

On another note, if we do start to see significant cost shifting to the commercial market, and drug prices climbing in other areas, commercial populations may look to price transparency solutions more than ever to help keep runaway costs in check.