The IRA is Law – Now What?
The passage of the Inflation Reduction Act (IRA) in late 2022 marked a milestone for the US healthcare system.1 For many years, policymakers and politicians had discussed possible methods of reducing drug prices and spending within the US, with no agreement on next steps. The IRA authorises the US Centers for Medicare and Medicaid Services (CMS) to directly negotiate drug prices for the first time (with details summarised in a separate write-up from Costello Medical here). Since March, however, CMS have released draft guidance on how they intend to proceed with the negotiation process, and the first drugs for negotiation are expected to be selected in the coming months.2
As the process for negotiations becomes clear, the implications have also come into focus. This year’s ISPOR International conference focused heavily on the implications of the IRA, with the opening plenary and several issue panels, workshops and research abstracts attempting to understand how the provisions in the new bill will impact individuals, the US government and manufacturers.
HTA or Price Setting?
Though the draft guidance suggests there will be a robust negotiation process to set the new prices, panellists at one Issue Panel argued that this process is more focused on government price setting. As there is a maximum fair price that CMS can fall back on should the parties be unable to reach a separate price, this aligns more closely with what many pharmaceutical manufacturers and affiliated trade groups have stated in lawsuits seeking to block the implementation of the drug price negotiation provision.3-6 There may be little political will to change the negotiation process, however. Some politicians may view any reduction in drug price as a beneficial outcome of the IRA, regardless of the negotiation process used to achieve the reduction.
Within the negotiation process, it will be interesting to understand what CMS allows and prioritises. As stated in a separate commentary here (‘New Opportunities to Capture Wider Aspects of Value’), traditional measures such as the quality-adjusted life year (QALY) cannot be used to inform these decisions, meaning CMS will have to use alternative methods for measuring “value” that may drive it further away from a health technology assessment (HTA) system like the UK’s National Institute for Health and Care Excellence (NICE) and towards the models used in France or Germany, where reimbursement is evaluated primarily based on clinical benefit rather than potential cost-savings.7, 8
Will the IRA Actually Lead to Reduced Drug Spending in the US?
The purpose of the pharmaceutical provisions in the IRA is ostensibly to reduce drug price spending for both individuals and the federal government. However, in the opening plenary, panellists engaged in a thoughtful discussion about what “affordability” means in the context of pharmaceutical prices. Meena Seshamani, Director of the Center for Medicare at CMS, pointed out that a drug could be affordable to the government, i.e., have a low budget impact, but still require large co-pays for individuals, and vice versa.9 She went on to say that several provisions in the IRA aim to explicitly increase individual affordability, such as capping insulin co-pays to $35/month and capping out-of-pocket costs on drugs to $2,000 in 2025. Other panellists believed that reductions in costs to patients may simply be incidental, and that the law is clear that the price reductions are aimed to lower costs specifically for the federal government.9 How and to whom those savings are passed on, however, are yet to be seen. This discussion around individual versus governmental affordability ultimately impacts future healthcare system reforms, particularly with the broad mix of payers in the US.
What are the Implications for Manufacturers?
Understandably, manufacturers have been watching this process unfold with some caution, waiting to see what the final guidance will look like before deciding on next steps. However, there are immediate-to-long-term consequences that are likely based on the draft guidance: