Will the Inflation Reduction Act Deflate Drug Prices?

The cost of prescription drugs is a growing concern for the U.S. healthcare system. Annual drug spending has increased from $30 billion (about $92 per person in the US) to $335 billion (about $1,000 per person in the US)(1). Drug prices are also rising at an alarming rate. Nearly half of the 4,200 drugs that had their price raised between January 2022 and January 2023 increased at a rate that outpaced inflation (2). Some reasons for these soaring costs are clear: the aging population is expanding and there is an ever-increasing arsenal of medications entering the market to meet their health needs. Unfortunately, these reasons alone do not fully explain why per-capita drug costs in the United States are more than double that of other industrialized nations (3). The tangled relationships between employers, public and private insurance, pharmacy benefit managers (PBMs), drug manufacturers, federal regulators, wholesale drug distributors, and patients have resulted in a complicated, even opaque, drug marketplace. Single-pronged solutions can be undermined by exploiting loopholes in rebate programs, tiered pricing arrangements, and patent extensions. On the bright side, recently passed, comprehensive legislation offers hope that meaningful drug price reductions could be on the horizon.

President Biden signed the Inflation Reduction Act (IRA) into law in August 2022. This sweeping legislative act included policies to help curb climate change, promote investment in clean energy, capture corporate taxes, and provide additional funding for the Internal Revenue Service. The IRA also brings significant reforms to Medicare and prescription drugs. These changes are anticipated to reduce federal drug spending by $237 billion over 10 years. This article will touch upon a few of the drug-price reduction policy changes introduced with the IRA, including: (4,5)

• Capping out-of-pocket spending for Medicare Part D enrollees

• Expanding eligibility for the Medicare Part D LowIncome Subsidy Program

• Eliminating cost sharing for adult vaccines covered under Medicare Part D

• Limiting monthly cost sharing for insulin to $35 for people with Medicare

• Empowering Medicare to negotiate prices with drug manufacturers

The IRA significantly changes how prescription drug costs are shared between enrollees, plan sponsors, drug manufacturers, and the federal government (i.e., Medicare). Most notably, out-of-pocket spending by Medicare enrollees will be capped at $2,000 annually starting in 2025. For an individual, this financial relief could be life-altering. Prior to implementing this rule, Medicare enrollees had to spend at least $8,000 to even qualify for “catastrophic coverage”. For a society that spends $335 billion on prescription drugs, this could be transformative. A study from 2020 estimated that nearly 16.5% of Americans (4.9 million people) spent catastrophic-level amounts on prescription drugs in 2020 (6). The IRA doesn’t stop there.

Previously, when Medicare Part D enrollees entered the catastrophic coverage phase, they would be required to pay 5% of their total drug costs above the threshold until the year ended unless they qualified for low-income subsidies. The IRA eliminates this 5% coinsurance requirement. Furthermore, Medicare Part D has expanded eligibility for its low-income subsidy (LIS). This program helps cover enrollees’ premiums, deductibles, and cost-sharing obligations. Previously, enrollees would qualify for either full or partial LIS benefits if they had assets <135% or between 135-150% of the poverty line, respectfully. With the IRA, all enrollees with assets below 150% of the poverty line will now qualify for full LIS benefits (4,5). In addition to changes in Medicare cost sharing, the IRA includes policies aimed at improving access to vital medications.

The IRA is eliminating patient cost-sharing for vaccines recommended by the Advisory Committee on Immunization Practices (ACIP). No copays, no deductibles, no out-of-pocket expenses. This includes vaccines for shingles, tetanus/diphtheria (Td), tetanus/ diphtheria/pertussis (Tdap), hepatitis A, and hepatitis B. Prior to the IRA, certain vaccines (e.g., COVID-19, influenza, and pneumococcal) were available without cost-sharing under Medicare Part B. However, for these other vaccines, enrollees could be responsible for 20% of the cost. With the IRA, all ACIP-recommended vaccines will be covered at no cost to enrollees of Medicare Part D, state Medicaid programs, and the Children’s Health Insurance Program (CHIP) (4,5).

Vaccines weren’t the only life-saving medications targeted by the IRA. In response to rising insulin prices, the IRA included a provision that limits the out-of-pocket costs for insulin to $35 per month for part D enrollees.

While this provision does not mandate the same benefit to noninsured or commercially insured patients, the major insulin manufacturers, Eli Lilly, Novo Nordisk, and Sanofi, have since voluntarily followed suit and are limiting patient co-pays to $35 per month (7). While this is great news for patients who take insulin, the IRA also includes a powerful provision that may lead to drug price reductions for a broader scope of agents.

Perplexingly, and unlike most other national health services here and abroad, Medicare has never been allowed to negotiate drug prices with manufacturers. This is about to change. The IRA is finally granting bargaining power to the Centers for Medicaid and Medicare Services (CMS) to negotiate a maximum fair price with manufacturers. While participation is technically voluntary, manufacturers will be subject to an excise tax starting at 65% and growing to 95% of drug sales if they decide to participate in Medicare or Medicaid without negotiating. Drugs for this program are selected based on their highcost burden to Medicare Part D, and this new legislation is expected to save US taxpayers $25 billion by 2031. However, there are some notable criteria for drugs to be eligible for negotiation (8).

Drugs must be at least 9 years out (for small-molecule drugs) or 13 years out (for biologics) from their Food and Drug Administration (FDA) approval or licensure date, they must not have any generic or biosimilar equivalent agent available, and they must contribute to at least $200 million in annual Medicare spending. In addition, orphan drugs for a single rare disease, plasma-derived drugs, and certain drugs manufactured by small biotechnology firms are exempt from negotiation (8).

The first batch of eligible drugs was announced in August 2023. These 10 Part D drugs include the anticoagulants Eliquis (apixaban) and Xarelto (rivaroxaban), the diabetes drugs Jardiance (empagliflozin), Januvia (sitagliptin), Farxiga (dapagliflozin), and Fiasp/Novolog (insulin aspart), the heart failure drug Entresto (sacubitril and valsartan), the biologic drugs Enbrel (etanercept) and Stelara (ustekinumab), and the anticancer drug Imbruvica (ibrutinib). The results of the negotiation process will be published in September 2024, and the new prices will take effect in January 2026. There will be 15 additional drugs eligible for negotiation in 2027, another 15 drugs for 2028, and then 20 drugs per year thereafter. For 2028 and beyond, drugs from Part B (e.g., clinician-administered drugs) will be eligible for negotiation, too (8).

The IRA has the potential to reduce medical debt for beneficiaries and to save Medicare billions of dollars. However, pending lawsuits from drug manufacturers, an upcoming election that may introduce political powers seeking to overturn the IRA, and the exploitation of loopholes that reside within the complex drug marketplace may still derail the realization of these benefits9-10. Time will tell if the Inflation Reduction Act can succeed in deflating drug prices.

Dinesh Yogaratnam, PharmD, BCPS, BCCCP is an Associate Professor of Pharmacy Practice at Massachusetts College of Pharmacy and Health Sciences School of Pharmacy Worcester/Manchester

Valerie Coppenrath, PharmD is an Associate Professor of Pharmacy Practice at Massachusetts College of Pharmacy and Health Sciences School of Pharmacy Worcester/Manchester

Zamir Latif, PharmD is a post-PharmD fellow of Clinical Sciences and Innovation at Novartis Institutes for Biomedical Research

Joseph Sidoti, PharmD is a post-PharmD fellow of Clinical Sciences and Innovation at Novartis Institutes for Biomedical Research