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 Since March, however, CMS have released draft guidance on how they intend to proceed with the negotiation process, and the first drugs for negotiation are expected to be selected in the coming months.2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Though the draft guidance suggests there will be a robust negotiation process to set the new prices, panellists at one Issue Panel argued that this process is more focused on government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:

Manufacturers will likely need to initiate robust, long-term real world evidence-based studies to collect data over the lifetime of a drug and re-state the potential benefits, despite the drug having been marketed for several years. This information could be synthesised in a summary evidence document that could act much like a value proposition, but with a strong emphasis on long-term clinical safety, efficacy, and value.

Manufacturers will have to reconsider what therapies they choose to invest in going forward. For diseases that disproportionately affect individuals who make up the Medicare population, there is a higher likelihood that the product will be chosen for price negotiation, potentially reducing the drug revenue over the second half of a branded product’s lifespan.3 Some manufacturers have already stated that they will cut back on drug development as a direct result of the IRA.10, 11 Additionally, venture capital firms and other investment companies may be less likely to invest in smaller firms developing pharmaceuticals, due to the long-term uncertainty of whether a future therapy will be discounted by CMS.

With the possibility of price reductions and price increases limited to the rate of inflation, newly launched therapies are more likely to have higher launch prices in order to pre-empt any potential loss in revenue moving forward. Jens Grueger, former President of ISPOR, expanded on this in a spotlight session, noting this could lead to substantial pushback in the private markets, where payers will have to engage in tougher negotiations to lower these prices. Furthermore, manufacturers will be pushed to try and attain higher reimbursements in ex-US markets to offset potential losses in revenue – this could again lead to more intense negotiations or more instances where drugs are not reimbursed in European markets, as ex-US agencies are unwilling or unable to pay the new premiums on drugs.12

IRA Drug Negotiation Process


The IRA has already had a large impact on the pharmaceutical industry despite the relatively recency of the bill. Individuals within the HEOR space will have a strong opportunity to provide input and shape how the negotiation process takes place. Over the coming years, as CMS starts to put the words of the law into action, Costello Medical and the rest of the industry will be closely watching to see how the bill will ultimately impact the public, payers, and patients across the US.


  1. Inflation Reduction Act of 2022 (PL 117-169). Available here.
  2. Meena Seshamani. Medicare Drug Price Negotiation Program: Initial Memorandum, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2026, and Solicitation of Comments. Available here. Last accessed: June 2023.
  3. Issue Panel IP227: Inflation Reduction Act (IRA) Negotiation: Closer to Government Price Setting or Traditional HTA? ISPOR International Congress, Boston, Massachusetts, 2023.
  4. PhRMA. NICA, GCCA, PhRMA Litigation Asserts Price Setting Provisions in the Inflation Reduction Act are Unconstitutional. Available here. Last accessed: June 2023.
  5. Reuters. Bristol Myers sues US government over Medicare drug price negotiation plan. Available here. Last accessed: June 2023.
  6. Merck. The Inflation Reduction Act’s Negative Impact on Patient-Focused Innovation, Value and Access. Available here. Last accessed: June 2023.
  7. OECD. Pharmaceutical Reimbursement and Pricing in Germany. Available here. Last accessed: June 2023.
  8. Haute Autorité de Santé. Pricing & Reimbursement of drugs and HTA policies in France. Available here. Last accessed: June 2023.
  9. First Plenary Session: Global Focus on Affordability and Inward Investment – What Does it Mean for HEOR? ISPOR International Congress, Boston, Massachusetts, 2023.
  10. Eli Lilly and Co. The Inflation Reduction Act’s Impact on Drug Discovery and Development. Available here. Last accessed: June 2023.
  11. BusinessWire. Alnylam Pharmaceuticals Reports Third Quarter 2022 Financial Results and Highlights Recent Period Activity. Available here. Last accessed: June 2023.
  12. Spotlight Session SP124: Medicare Drug Price Negotiation in the US: Implications, Evidence Needs, and Unanswered Questions. ISPOR International Congress, Boston, Massachusetts, 2023.

If you would like any further information on the themes presented above, please do not hesitate to contact Aaditya Rawal, Consultant – US Market Access and Health Economics (LinkedIn). Aaditya Rawal is an employee at Costello Medical. The views/opinions expressed are his own and do not necessarily reflect those of Costello Medical’s clients/affiliated partners.