IRA: How the Inflation Reduction Act Impacts Big Pharma

The Inflation Reduction Act (IRA) of 2022 has clear objectives: direct new federal spending toward reducing carbon emissions, fund the Internal Revenue Service, improve taxpayer compliance, and lower healthcare costs.

Through the IRA, Congress seeks to make prescription drugs more affordable with reforms that will reduce the price of drugs and limit out-of-pocket costs for many Medicare patients. In today’s healthcare reality, prescription drugs account for about 20% of Medicare patients’ out-of-pocket costs. Spending on prescription drugs continues to grow as other health spending has decreased.

To gain a full understanding of how this discussion between big pharma and the federal government plays out, Director of Research at AlphaSense, Nick Mazing, spoke with Emily Coriale, Senior Principal Pricing & Market Access Lead at LifeSci Consulting on the latest episode of Signals. 

As the industry prepares for the IRA’s implementation, Coriale shares the importance of understanding and mitigating risks, proactive stakeholder communication, and collaboration between healthcare sector partners.  

Understanding the Act

The Inflation Reduction Act’s Three Main Components

The IRA has three key components that are expected to impact the US healthcare system:

• Drug price negotiation will allow the Centers for Medicare and Medicaid Services (CMS) to negotiate with drug manufacturers for high-spend drugs within the Medicare program—a first in the US.
  
• Prescription drug inflation rebates will require manufacturers to pay certain rebates for Medicare Part B and Part D drugs if drug price increases exceed the rate of inflation.
  
• The Medicare Part D redesign will reduce the maximum out-of-pocket expenses for Medicare Part D beneficiaries, shifting financial exposure to manufacturers and health plans.

Altering the Healthcare Value Chain 

The IRA will not only impact Medicare but will also create a domino effect on the entire healthcare system. The reduction in out-of-pocket expenses for patients could influence investment in drug discovery and clinical development, ultimately affecting venture capital funds and public markets.

The IRA’s impact on drug negotiations and financial exposure could also change the balance of technologies and disease states that are funded in the future.

The Manufacturers’ Perspective 

As the IRA is set to begin its rollout in 2023, manufacturers must understand the impact on their existing portfolio and future investments. To mitigate risks and proactively develop strategies, they must consider their position in the development phase and the implications for their investors. Open communication and collaboration between manufacturers and health plans will be vital in navigating the challenges presented by the IRA effectively.

Forecasting the Future

The Unknown Outcomes of the Inflation Reduction Act

The Inflation Reduction Act (IRA) introduces uncertainties in the healthcare industry, as the specifics of how health plans and manufacturers will react to the new financial exposure remain unknown. This includes questions about potential changes to rebates and the implications for preferred products, as well as the overall impact on the healthcare market.

“The biggest, you know, unknowns are actually what aren’t outlined,” Coriale says. “It’s the, ‘What are health plans going to do with this financial exposure? What are the manufacturers gonna do? How are they going to navigate what rebates look like? What products are gonna be preferred?’”

Biosimilars and Rare Orphan Disease Drugs 

The impact of the Act on the healthcare system raises concerns about the future of biosimilars and rare orphan disease drugs, as well as their investments. The legislation could affect how these drugs are developed and funded, as well as the potential consequences for patients who depend on them.

Domino Effect on the Commercial Sector 

The IRA’s effects go beyond Medicare, as the commercial sector will likely feel its impact as well. The legislation’s influence on Medicare drug negotiations could have implications for the commercial sector, potentially changing the way drugs are negotiated and priced in that market too.

Proactive Partnership in the Healthcare System

Navigating the changes brought by the IRA requires collaboration between all stakeholders in the healthcare system. Understanding not only one’s own risks but also the potential implications for partners will be essential for manufacturers and health plans to work together and ensure the best possible patient care in a changing environment.

“I think really understanding what your own personal risk is is important, but also understanding what your partner’s implications can be, as well,” Coriale says. “I think often we live in our swim lanes, but if we think about the system as a law, as in a large, you know, all of our system and really taking care of patients, it’s really important for plans and manufacturers to work together to make this work.”

Keeping Tabs on Emerging Developments

To be at the forefront of the pharma industry, it’s crucial to be on top of every new development. You need AI search technology to help you speed up your ability to track new regulations and key trends so you can better inform your decision-making and take the lead. 

AlphaSense offers an extensive universe of company filings, earnings transcripts, expert interview transcripts, news, trade journals, and equity research—paired with proprietary AI-based search technology—to pinpoint valuable insights in seconds.

Start your free trial with AlphaSense today.