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An IRA Progress Report: What We Know (and Don’t Know) Two Years in
HMP Market Access Intelligence Team
As we approach the two-year anniversary of the Inflation Reduction Act (IRA), this feels like a good opportunity to revisit and understand the transformative health care provisions introduced by this landmark legislation. Enacted to address significant economic and social challenges, the IRA introduced reforms aimed at reducing out-of-pocket expenses for Medicare beneficiaries, improving affordability, and streamlining health care delivery. Among the most impactful changes is Medicare’s newfound ability to negotiate drug prices directly.1
To appreciate the significance of this change, let’s look back at its historical context.
In 2003, Congress signed into law the Medicare Prescription Drug, Improvement, and Modernization Act, effectively creating the optional Part D prescription drug benefit. As part of this, lawmakers included the noninterference clause, which prevented the Secretary of Health and Human Services (HHS) from negotiating drug prices directly or mandating specific formularies or price structures.2 The clause was a compromise that pharmaceutical manufacturers could agree to in order to participate in the Part D program.
The IRA represents a pivotal shift by amending the language in the noninterference clause to add an exception that allows the Secretary of HHS to negotiate the prices of a small number of single-source branded drugs or biosimilars without generic or biosimilar competitors beginning in 2026.1
This exception introduces a new dynamic in drug pricing, aiming to make medications more affordable and accessible for Medicare beneficiaries and potentially saving billions in health care expenditures. (Interestingly, the Congressional Budget Office in both 2007 and 2019 stated that enabling HHS to negotiate drug prices would have an insignificant effect on overall Medicare spending, but it now projects a savings of over $98 billion for the program over the next decade.3,4)
The takeaway is clear: Congress holds the power to enact, revise, and amend laws based on evolving needs. The amendment to the noninterference clause, enabling the Secretary of HHS to negotiate drug prices, reflects a contemporary focus on reducing health care costs. While this amendment poses a risk that manufacturers might withdraw from the Part D program, all signs suggest that the Centers for Medicare & Medicaid Services (CMS) is confident this won’t occur. And, despite the nine lawsuits challenging the IRA’s constitutionality and alleging various violations of the Administrative Procedure Act, the first cycle of negotiations continues.
In April, HHS responded to manufacturers’ counteroffers to Medicare’s proposed maximum fair prices (MFPs). Since then, CMS has been methodically rolling out its drug price negotiation program, most recently with the draft guidance published in early May. However, the guidance has several notable gaps: it doesn’t specify how prices are set or how transparency in the negotiation process will be improved.5 Several industry stakeholders, including the American Hospital Association, have also expressed concerns about CMS’s proposed retrospective refund process as well as other operational issues.6
Barring any setbacks, CMS will publish the MFPs on September 1, with negotiations set to take effect on January 1, 2026.
But drug price negotiation is just one facet of the IRA. Beyond this, another significant provision of the IRA remains unanswered. In February, CMS issued their part 2 draft guidance on the Medicare Prescription Payment Plan (colloquially referred to as “smoothing” or now more officially, “M3P”) and accepted comments until mid-March. The guidance stressed the importance of outreach, education, and communication requirements for drug plans to effectively inform and educate members about the program.7 The exact parameters of M3P are still being defined, as stakeholders question how missed payments will be addressed or who assumes financial responsibility.
As we await the final guidance expected sometime this summer, the industry watches closely, poised for further developments.
Stay informed, stay prepared, and stay ahead in the evolving world of health care reform. In light of ongoing regulatory complexities, collaboration among industry stakeholders is more crucial than ever.
And speaking of collaboration, join us at the Clinical Pathways Congress + Cancer Care Business Exchange in Boston, from September 6-8, 2024, to explore how community oncology providers are forming strategic partnerships through joint ventures to innovate service line development and care delivery. Don’t miss the session, Risk & Rewards of Oncology Joint Ventures & Strategic Partnerships, for insights on navigating these partnerships and staying ahead.
References
1. Cubanski J. FAQs about the Inflation Reduction Act’s Medicare Drug Price Negotiation Program. KFF. January 31, 2024. Accessed July 3, 2024. https://www.kff.org/medicare/issue-brief/faqs-about-the-inflation-reduction-acts-medicare-drug-price-negotiation-program/
2. Medicare Prescription Drug, Improvement, And Modernization Act Of 2003, Pub L No. 108-173. 117 Stat 2066.
3. Orszag PR. Untitled statement letter. Congressional Budget Office. April 10, 2007. Accessed July 3, 2024. https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/reports/drugpricenegotiation.pdf
4. Hall K. RE: negotiation over drug prices in Medicare. Congressional Budget Office. May 17, 2019. Accessed July 3, 2024. https://www.cbo.gov/system/files/2019-05/55270-DrugPricesMedicare.pdf
5. Seshamani M. Medicare Drug Price Negotiation Program: draft guidance, implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2027 and Manufacturer Effectuation of the Maximum Fair Price (MFP) in 2026 and 2027. Department of Health & Human Services. May 3, 2024. Accessed July 3, 2024. https://www.cms.gov/files/document/medicare-drug-price-negotiation-draft-guidance-ipay-2027-and-manufacturer-effectuation-mfp-2026-2027.pdf
6. Thompson A. AHA submits comments on CMS guidance for Medicare Drug Price Negotiation Program. American Hospital Association. July 2, 2024. Accessed July 3, 2024. https://www.aha.org/lettercomment/2024-07-02-aha-submits-comments-cms-guidance-medicare-drug-price-negotiation-program
7. Seshamani M. Medicare Prescription Payment Plan: draft part two guidance on select topics, implementation of Section 1860D-2 of the Social Security Act for 2025, and solicitation of comments. Department of Health & Human Services. February 15, 2024. Accessed July 3, 2024. https://www.cms.gov/files/document/medicare-prescription-payment-plan-draft-part-two-guidance.pdf
