The Inflation Reduction Act (IRA) passed on August 16th, 2022 brings big changes for the pharmaceutical industry. On August 31st we had a live discussion on the law’s anticipated impact. Here is a summary of our discussion:
Inflation Penalty
The intent of the law is to impose penalties on manufacturers who raise drug prices faster than inflation. Penalties will begin very soon; however, recent Consumer Price Index (CPI) inflation rates allow increases of around 13.5% without any penalties assessed. Manufacturers are anticipated to increase launch prices to make up for lower annual price increases.
Price “Negotiation” Schedule and Limitations
The number of drugs will be limited
Health and Human Services (HHS) will select up to 60 Part D/ Part B drugs for negotiation in the next few years. Selected drugs must meet specific criteria, including time on market and the presence of competition.
What is the “Maximum Fair Price?”
If a drug is selected for negotiation, its price will be reduced by 25%, then 35%, then 60% over a predefined timeline. HHS will try to lower those prices more through further negotiations with the respective drug manufacturers.
Revenue loss
The collection of drugs subjected to this law will lose approximately $10 billion per year. A “double dipping” scenario may occur when these price reductions are combined with typical rebates to Part D Plan sponsors and 340B discounts. A 90% loss of revenue is plausible when this scenario occurs.
Impact on Pharma
The impact of the IRA law on pharma will be measured in the billions of dollars. This loss of revenue will be focused not only on the drugs selected for negotiation by Medicare, but also in the commercial channel, as manufacturers are constrained in raising their list prices.
In case you missed it…
Part of the discussion focused on how to predict if your product may be subject to “negotiation”. If your product could conceivably become subject to HHS negotiations, you will want to be very familiar with different timelines and scenarios. This webinar can help you!
Send us an email to access a recording of this review of the Inflation Reduction Act and how it may impact pharm.
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