The Inflation Reduction Act (IRA) is a sneaky piece of legislation. It sounds so promising with a cap on out-of-pocket (OOP) spending in Part D and really sticking it to Big Pharma. But does the legislation get us to the stated goal of lower drug prices and have outcomes (or consequences) that are worth the trade-off?
Last week’s NYT’s Daily podcast on the Medicare drug negotiation is a good listen. They shared the legislative history of the Medicare prescription drug benefit (Part D) – middle of the night voting! Arm twisting! Extended roll call! It is a fantastic reminder that not long ago, most drugs were not covered by Medicare.
As MAPRx pointed out in a rusty, but still valid, white paper — Part D is a success story and a work in progress. The legislation had contingencies in case too few plans joined the marketplace, but the private-public partnership worked out pretty well. There is a lot of plan competition, we’ve seen innovation in the prescription drugs available and that allowed for discounts and rebates to be negotiated, sometimes heavily.
Yet the benefit, as passed, was not perfect. The podcast didn’t dwell much on the compromises that were made with the Medicare Modernization Act in benefit design (donut hole/coverage gap) and then partially fixed with the Affordable Care Act (filling the coverage gap with funding from pharmaceutical manufacturers.) It is with the Inflation Reduction Act (IRA) that patients got their biggest win – an annual out-of-pocket cap and an ability to limit monthly costs with smoothing. Negotiation may further lower their cost because it will require cost-sharing to be based on the negotiated price of the drug unlike it is with the rest of coverage where plans, according to a new GAO report, pay less than beneficiaries.
The podcast ends on an important question – what are the consequences of the IRA’s Medicare negotiation? The story acknowledges that the money is coming from somewhere; lowering the price of drugs has an impact, but it pushes no further. Like a balloon that gets squeezed and the air adjusts inside the balloon.
The Congressional Budget Office estimated that there would be 15 fewer drugs over the next 30 years. That seems highly optimistic and a rather incomplete accounting of the potential consequences of the IRA. The University of Chicago published a paper that estimated that pharmaceutical revenue would face up to 8% reduction and a 12.3% reduction in R&D due to the negotiations. This would mean about 80 fewer drugs and almost 200 fewer indications over the next 20 years. It could also mess with the brand-to-generic product lifecycle. How much motivation do generic or biosimilar manufacturers have to enter the market if the brand product is negotiated?
New laws create new incentives, and we can’t even imagine all of the outcomes yet because the rules literally have not been written yet. This is an experiment. The job of those of us in health policy is to help shape that balloon and ensure that we do strike that balance of cost, access and coverage. And it takes that variety of viewpoints to keep the discussions centered; we will need patient groups like MAPRx and those dedicated to specific conditions to help shape the path forward and talk about the outcomes they fear. The devil is in the implementation, rarely the legislation.