The SMART Prices Act is the Next Chapter in IRA-Driven Drug Pricing Reform
In the ever-evolving landscape of health care policy, the Strengthening Medicare and Reducing Taxpayer (SMART) Prices Act has emerged as a contentious piece of legislation that seeks to build upon the drug pricing reforms introduced by the Inflation Reduction Act (IRA) of 2022.1 As we approach the end of the 118th Congress, the SMART Prices Act remains under review, with its fate hanging in the balance amidst fierce debate and industry pushback.
Unpacking SMART: Medicare’s Potential Game-Changer
The SMART Prices Act (S 1264), introduced on April 25, 2023, by Senators Amy Klobuchar (D-MN), Peter Welch (D-VT), and 23 other democratic colleagues, aims to accelerate and expand the Medicare drug price negotiation program established by the IRA. Although introduced last year, the bill has been stagnant in Congress. Senator Klobuchar has recently renewed efforts to push for its passage amid the heightened focus on the first 10 negotiated Part D drug prices.
The bill proposes several significant changes to the current system:1
- Accelerated Drug Selection: The bill would dramatically increase the number of drugs eligible for negotiation, starting with 20 in 2026 and ramping up to 40 per year from 2027 onward. This is a substantial increase from the IRA's original plan of 10 to 20 drugs per year.
- Earlier Eligibility: In a move that has alarmed the pharmaceutical industry, the Act would reduce the period before drugs become eligible for negotiation to just 3 years after US Food and Drug Administration (FDA) approval. This applies to both small molecule drugs and biologics, significantly shortening the window during which manufacturers can recoup their research and development costs.
- Lower Price Ceilings: The Act proposes to lower the maximum fair price ceilings for negotiated drugs. This could result in even steeper price reductions than those mandated by the IRA, potentially impacting the industry's profit margins and investment strategies.
- Repeal of Non-Interference Clause: Perhaps the most controversial aspect of the bill is its proposal to repeal the Medicare Part D non-interference clause. This longstanding provision has prohibited the government from directly negotiating drug prices with manufacturers. Its removal would fundamentally alter the dynamics of drug pricing in the Medicare program.
As we enter the final months of the 118th Congress, the SMART Prices Act faces significant challenges. While it has garnered support from 25 democratic Senators, the bill has yet to achieve bipartisan backing.2 The current political landscape, characterized by a divided Congress and the approaching 2024 elections, makes the likelihood of passage before the end of the term appear slim.
The pharmaceutical industry's vigorous opposition has created substantial headwinds for the bill. Additionally, some moderate democrats have expressed concerns about potential impacts on innovation, further complicating its prospects.3 The Act seems caught between progressive ambitions to lower drug prices and industry warnings about reduced innovation and access to new treatments.
Pharmaceutical Industry Response
Several major pharmaceutical manufacturers have already announced changes to their research and development strategies in light of the IRA's provisions, with some dropping early-stage research projects, particularly in areas like cancer treatment.3
Industry leaders argue that these policy changes will stifle innovation and ultimately harm patients by reducing the pipeline of new drugs. They contend that the shortened period before price negotiations begin will make it extremely difficult to recoup the substantial investments required for drug development, especially for complex and high-risk areas of research.3
This pushback isn't limited to public statements and strategy shifts. The industry has taken legal action, with multiple lawsuits filed against the US Department of Health and Human Services (HHS) challenging the constitutionality of the Medicare drug price negotiation program. These legal challenges argue on several fronts, including violations of due process, exceeding statutory authority, and infringement of First Amendment rights, though all claims have been rejected thus far.
The Innovation Dilemma
At the heart of the debate lies a fundamental question: How do we balance the need for affordable medications with the imperative to incentivize pharmaceutical innovation?
Proponents of the SMART Prices Act argue that the current system allows for excessive profits at the expense of patient access. They contend that more aggressive negotiation and earlier intervention will help control runaway drug prices and make essential medications more affordable for seniors and taxpayers.2
However, critics warn of unintended consequences. They argue that the proposed changes could lead to a significant reduction in pharmaceutical research and development, particularly in high-risk, high-reward areas of medicine. The concern is that by reducing the potential returns on investment, the act could discourage companies from pursuing innovative but financially risky drug development projects.3
Looking Ahead
As the 118th Congress enters its final months, the fate of the SMART Prices Act remains uncertain. While its passage this term seems unlikely, the bill has undoubtedly intensified the debate around drug pricing and health care policy.
For pharmaceutical manufacturers, the combined impact of the IRA and the looming threat of further reforms like the SMART Prices Act is already reshaping strategic decisions. The industry's legal challenges to the Medicare Drug Price Negotiation Program will likely play out in the courts over the coming years, potentially influencing the trajectory of future policy efforts. Regardless of the SMART Prices Act's immediate prospects, it's clear that the push for drug pricing reform is far from over. As we move closer to the 2024 elections, health care affordability will undoubtedly remain a key issue for voters and policymakers alike.
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References
1. Strengthening Medicare and Reducing Taxpayer Prices Act, S 1264, 118th Cong, (2023).
2. Winegarden W. The Inflation Reduction Act was only the beginning. Forbes. May 5, 2023. Accessed August 19, 2024. https://www.forbes.com/sites/waynewinegarden/2023/05/05/the-inflation-reduction-act-was-only-the-beginning/
3. Philipson T. The SMART Prices Act is anything but smart. The Hill. June 29, 2023. Accessed August 19, 2024. https://thehill.com/opinion/congress-blog/4074794-the-smart-prices-act-is-anything-but-smart/
