What You Need to Know About the Inflation Reduction Act and Its Implications

The Inflation Reduction Act was signed into law on August of 2022.? One of its goals is to lower health care costs.? This is a win for many patients but as is often the case, there are implications that need to be assessed.? While the IRA primarily impacts Medicare, it is likely to have far reaching impacts to drug development, payers and patients.??

First, the simplest part of the new law requires drug companies that raise their drug prices faster than the rate of inflation to pay a rebate to Medicare. This may have implications to launch price strategy and future pricing considerations.

Second, Medicare will now have the authority to directly negotiate drug prices with pharmaceutical companies.? There are limitations as the negotiations are reserved for high expenditure drugs that lack any generic or biosimilar equivalents and is a phased approach.

• Small molecule drugs are significantly impacted because Medicare will be able to negotiate prices after just seven years.? This will likely have a negative impact on drug development of small molecules thereby reducing the future treatment options available for some diseases.?

• The IRA exempts orphan drugs but only those with a single approved indication.? This may impact how pharmaceutical and biotechnology companies approach the development of drugs for rare diseases.? This is troublesome as a review of FDA approved orphan drugs from 2003 to 2022 analyzed of the 280 drugs with available indications, 61 percent of them received follow-on indications (1).? This may have significant implications for patients with serious illness and unmet needs as drug manufacturers may choose to forgo certain clinical trials in their portfolio of possible disease targets.? Furthermore, this will place great financial pressure on startup companies who planned on addressing small markets before launching into larger indications as they will lose years of revenue. It specifically disincentivizes development of some treatments for rare diseases, in effect working against the Orphan Drug Act of 1983.?

Third, Medicare Part D will be redesigned to limit out-of-pocket (OOP) drug costs to Medicare patients to $2000 per year.? The new law results in a significant shift of the “catastrophic phase” of Part D coverage to drug makers and payers

• This will result in a 20 percent gross-to-net impact on high-priced Part D products.? This is likely to impact drug development investments.?
• Furthermore, because Part D is the plan for outpatient prescription drugs, this will further disproportionately impact small molecule drugs.??

What does all of this mean??Conservative estimates indicate that up to 139 drugs may not be developed in the next ten years.? Additionally, between 66,800 and 135,900 direct jobs may be lost as a result of these changes (2).???

What can be done?

• Market access teams must leverage real-world evidence to establish evidence to justify targeted pricing and outcomes to support negotiations of their value proposition to the Department of Health and Human Services.? Because negotiation will not take place immediately, pharmaceutical manufacturers will be quick to adapt based upon data on hand.? This requires close cross-functional collaboration across organizations.
• Companies will evaluate their portfolio R&D strategy based upon considerations of patient population (particularly if the target patient population is primarily Medicare aged), disease area, and platform (small molecule vs. biologic) in the new reality of IRA.???Startup companies in particular must figure out financing solutions if they forego smaller indications.
• Clinical Development and Launch Execution will be expedited and efficient.? Companies will need support to be better at clinical trial recruitment, trial design, and marketing of their therapies.? Greater cross-functional collaboration from early research and development, clinical development, and through the entire life cycle of the drug are more critical than ever.??
• Leveraging data and new technologies to deliver flawless execution will be essential.? The stakes are high. Investments to better understand markets, monitor execution, and derive insights must be leveraged.? This is especially critical as many companies have downsized in anticipation of IRA impacts.??

This new reality is a challenge and we are already feeling the impact.? Pharmaceutical executives must quickly adapt.? It is more important than ever to be efficient and the marketplace will reward those who adapt strategically and execute flawlessly. ? We are on the cusp of making some great advances so let’s figure out how to make this work as the patients and their families are still eagerly waiting.???

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Disclaimer: The opinions and beliefs expressed are mine and do not necessarily reflect the opinions and beliefs of my employer.

References:

1. Chambers JD, Clifford KA, Enright DE, Neumann PJ. Follow-On Indications for Orphan Drugs Related to the Inflation Reduction Act. JAMA Netw Open. 2023 Aug 1;6(8):e2329006. doi: 10.1001/jamanetworkopen.2023.29006. PMID: 37581890; PMCID: PMC10427936.
2. https://vitaltransformation.com/wp-content/uploads/2023/09/VT-BIO_IRA_v13.pdf