The passage of the Inflation Reduction Act (IRA) in August 2022 will impact patients, providers, and benefit plan sponsors by disrupting drug pricing. The IRA allows the Department of Health and Human Services to negotiate specific drug prices for the Medicare program. While the specifics of the act are complex and well-explored, the intended result is to lower healthcare and prescription drug costs for millions of Americans.
Year after year, prescription drug costs increase. January 2022 saw pharmaceutical manufacturers announce average list price increases of $150 per drug. In July, the average was $250, with some drug prices increasing by more than $20,000 or 50%.
In 2021, the US healthcare system spent $603 billion on prescription drugs. An increase attributed to a rise in spending per prescription rather than an increase in utilization.
The IRA sets a cap for how much pharmaceutical companies can charge for especially high-cost drugs that Medicare currently covers while allowing for negotiating prices. Together, these provisions could control drug prices for Medicare, which directly affect costs for commercial and other government-run plans. The IRA also outlines rebates that manufacturers would be required to pay if price increases outpace inflation for drugs used by Medicare beneficiaries.
While the need for price control is recognized across the industry, many stakeholders see some unintended consequences of the IRA.
Biosimilar development may become even more complicated as manufacturers would be subject to new price controls. As biosimilar competition heats up in the United States, the IRA could prioritize reference or brand medications, making it difficult for new biosimilars to enter the market and remain profitable.
Reimbursements for physicians and hospital systems may also be affected by the IRA. As reimbursement payments decline, physicians may find practice ownership too expensive and integrate with larger health systems. Consequently, commercial health plans would pay more for the in-clinic administration of drugs.
While new medication will be exempt from immediate price controls, time limits on exemption may pressure drug manufacturers to reduce costly research and development. Historically, an open market has made the United States a world leader in R&D. It remains unclear how price controls will affect innovation.
Only time will tell how the IRA may affect drug pricing. However, transparency into actual drug costs and plan spend will continue to be essential for plan sponsors as they adapt to new pricing rules and a changing drug landscape.
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Published: October 24, 2022