The Potential Impact of the IRA

MEEFRO January 12, 2023

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The 2022 Inflation Reduction Act (IRA) is 274 pages, and the biopharma industry’s attention to the IRA is Title 1, Committee on Finance, Subtitle B Prescription Drug Pricing Reform.¹ This contains the following:

Part 1: Lowering Prices Through Drug Price Negotiation
Part 2: Prescription Drug Inflation Rebates
Part3: Part D Improvements and Maximum Out-Of-Pocket Cap for Medicare Beneficiaries
Part 4: Continued Delay of Implementation of Prescription Drug Rebate Rule
Part 5: Miscellaneous

For context, Subtitle B comprises pages 17 through 89 (72 pages) and is preceded in order by Subtitle A Deficit Reduction, coming in at 16 pages. As related to biopharma, the IRA is going to take time to weed out on a variety of levels—understanding, implementation, and unintended consequences.

Signed into law on Aug. 16, 2022, the IRA allowed Congress to create the Drug Price Negotiation Program, which gives the secretary of the HHS the ability to negotiate directly with drug manufacturers on behalf of Medicare recipients. The HHS secretary and drug manufacturers will negotiate a “maximum fair price (MFP)” for some brand-name drugs that have no generic competitors. It includes all eligible drugs covered under Medicare Part D (retail prescription drugs) and Part B (treatments administered by doctors or other providers in an outpatient setting). Now, five months in, biopharma is—arguably so—still trying to figure out what the law means in the day-to-day business.

An infographic timeline from the Centers for Medicare & Medicaid Services (CMS)2 is probably easier to understand than the actual written law (albeit with very little detail). The first significant milestone indicates that: “By Sept. 1, 2023, CMS will announce the first 10 Medicare Part D drugs selected for the Drug Price Negotiation Program. [MFP] negotiated for these first 10 Part D drugs will go into effect in 2026.”²

Some consultants think the 2026 implementation date gives the industry time to breathe while others say “not so fast.”

Could the law be repealed? The Drug Price Negotiation piece for “drug pricing” is very popular with lawmakers and the public. In an interview with STAT, Stephen Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), said that there probably wouldn’t be a significant change to the law in the short-term because the same political balance of power exists (i.e., the same president and democratic Congress), which will not be pressed to address this.³

Could the law be challenged? In a December article from our sister publication, Pharmaceutical Commerce, Ed Schoonveld, managing partner and founder of the value and access practice at ZS, said the following of the IRA: “The level of penalties for not complying with CMS rules gives a strong scent of direct price control rather than negotiations; this is also likely a basis for [a] legal challenge of the IRA.”⁴ Schoonveld, in an email exchange with Pharm Exec, commented: “We don’t even know what CMS will use as a basis for what they decide is a fair price. It is also not clear yet what the impact will be on the private market.”

He stresses that the magnitude of penalties make this price control, but not speaking as a lawyer, he is unsure of what the legal angle or strategy would be, or what legal standing any stakeholder would have (i.e., PhRMA). “My guess would be that it would have to be one or more of the companies that are directly impacted by the first selection of drugs up for ‘negotiation,’” said Schoonveld.

Meanwhile, according to Ubl, PhRMA’s job for the next couple of years is to capture the negative innovation impacts that can be presented to Congress for a better political calculus. “It’s going to be difficult because manufacturers aren’t going to want to talk about programs they are cancelling, orphan indications, follow-on research, etc.,” he said.3

In addition, PhRMA will be figuring out basic questions, such as what Schoonveld mentioned: How are the drugs going to be selected? Is it gross prices or is it net prices? How are MFPs going to be established? What are the opportunities for input to CMS and HHS from manufacturers and other stakeholders?

Ultimately, as the industry knows, and as Ubl noted in the STAT interview, drug pricing is a systems problem—one, he said, pricing reform efforts in the IRA failed to recognize.

Lisa Henderson is the group editorial director for Pharmaceutical Executive
and can be reached at lhenderson@mjhlifesciences.com.