How Might IRA’s Drug-Pricing Provisions Affect Stakeholders | Deloitte US has been saved
By Jay Bhatt, D.O., managing director of the Deloitte Health Equity Institute and the Deloitte Center for Health Solutions, Deloitte Services, LP
Last month, the Centers for Medicare and Medicaid (CMS) identified the first high-cost drugs that will be subject to price negotiation under the Inflation Reduction Act (IRA).1 We recently held a webinar that explored the drug-pricing provisions of this law and examined the likely impact on pharmaceutical manufacturers and other stakeholders (see a replay of the webinar here: Industry impacts of the IRA’s drug pricing provisions).
The law was enacted in August 2022 and some of the key provisions are just beginning to go into effect (see Biopharma’s IRA readiness: From What? to Now What?). Under the law, federal regulators have the ability to negotiate directly with pharmaceutical manufacturers around prescription drug prices under Medicare Part D and Part B (prescription drugs administered by physicians or clinicians). My colleague and health policy expert, Anne Phelps, noted that the IRA might be the biggest regulatory change to Medicare since the enactment of the Medicare Prescription Drug, Improvement, and Modernization Act (Medicare Part D) nearly two decades ago.
In addition to price negotiations, the law also includes inflationary rebate provisions for all drugs covered by Medicare Part B and Part D. These rebates are tied to the Consumer Price Index for All Urban Consumers (CPI-U). Drug companies that raise their drug prices faster than the rate of inflation—as measured by CPI-U—will be required to pay an inflationary rebate to Medicare. The law’s provisions (e.g., negotiations, inflationary rebates, Part D design) are meant to work in harmony to reduce out-of-pocket spending for Medicare beneficiaries.
10 drugs identified for price negotiation
The first 10 drugs identified for negotiation represent slightly more than $50 billion (between June 1, 2022, and May 31, 2023) in gross prescription drug spending for the Medicare program—about 20% of total drug expenditures, according to the Department of Health and Human Services (HHS).2 The selected drugs are used to treat a broad range of conditions (e.g., heart failure, diabetes) that affect nearly 9 million Medicare beneficiaries, according to HHS.
The IRA will be rolled out over the next several years, so it is too soon to know exactly how it will play out. My colleague Brian Corvino, who took part in the webinar, noted that drug manufacturers spend an average of $2.3 billion—from discovery to launch—to bring a new drug to market. The top 20 global pharmaceutical companies collectively spent $139 billion on research and development (R&D) in 2022 (see Measuring the return from pharmaceutical innovation 2022).
While the IRA is expected to have a direct impact on some drug manufacturers, it is also likely to have a downstream effect. During the webinar, my colleague Ryan DeMerlis offered his take on some of the direct and indirect effects the law’s drug-pricing provisions could have on other health care stakeholders.
Health plans, pharmacy benefit managers (PBMs), pharmacies, employers, hospitals, health systems, and other providers will likely all need to understand how both changes in the drug benefit—and increased pressure on manufacturers to lower drug prices—could affect their operations and financials. The price-negotiation provisions, for example, will likely impact the drug-acquisition price for providers and pharmacies, as well as their reimbursement rates. Health plans and PBMs might need to adjust their financial models to include the additional spending from beneficiary cost-sharing reductions. There will likely also be conversations around rebates amongst all the players as the effects of lower negotiated prices put pressure on business practices.
Anne noted that drug manufacturers, trade associations, and other groups have filed lawsuits attempting to block or delay the drug-negotiation provisions of the IRA. Nine lawsuits have been filed in multiple jurisdictions across the country since the enactment of the law. If court decisions differ by appeals courts, those issues could bubble up to the US Supreme Court. So far, none of the lawsuits have progressed to stop CMS from moving forward and implementing the law.
There are still a lot of discussions taking place in Congress around drug prices and the cost of health care in general, Anne said. There seems to be a major focus on transparency in how drug prices are set and paid for. She added that with any law of this size, there are likely to be ongoing discussions as new guidance is released, and as new data is compiled. This blog, along with our recent webinar, are aimed at helping you understand some key provisions of the IRA. It is not a commentary on the various perspectives that may exist about the law.
Latest news from @DeloitteHealth
Endnotes:
1HHS announces key dates for the first year of IRA, US Department of Health and Human Services, January 11, 2023; Inflation Reduction Act tamps down on prescription drug price increases above inflation, CMS.gov, March 15, 2023
2HHS selects the first drugs for Medicare drug price negotiation, HHS press release, August 29, 2023
3Navigating the parallel path of patent litigation alongside the Inflation Reduction Act, Reuters, August 31, 2023
This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.
Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.
Return to the Health Forward home page to discover more insights from our leaders.
