A Closer Look at the Health Care Provisions in the Inflation Reduction Act

Brian Reid, Head of Corporate Pricing and Public Affairs at Real Chemistry, discusses the Inflation Reduction Act and the impact it may have on the way that pharmaceuticals are marketed, priced and sold, as well as its aims to reform parts of the Medicare benefit in the Medicare Part D Program.

Transcript

Hi, I'm Brian Reid. I run the Corporate Pricing and Public Affairs group at Real Chemistry, a Global Health Innovation Company. And the Journal of Clinical Pathways invited me today to talk about the Inflation Reduction Act. The major pieces of legislation that reforms in meaningful ways, our entire health care bureaucracy. It does a number of other things involving climate change, involving taxes, but I really want to focus today on those health care provisions.

Now there's a number of provisions that are really important, but I want to even focus more precisely on those that impact the way that pharmaceuticals are marketed, priced and sold. So there are other health care provisions. It extends by two years pandemic era subsidies on Obamacare plans bought in the health insurance marketplace. That's going to mean that about 13 million Americans continue to have subsidized insurance. That's a really big deal. Recently, the government came out and said that we've hit our lowest uninsured rate ever, and that's going to help extend that.

There are other important provisions as well. Seniors will see free or free to them, no out of pocket vaccines. And really some other really important health care, public health measures. But the real focus and I think the real emphasis of this bill, was reforming a couple of parts of the Medicare benefit in the Medicare Part D Program. That of course the prescription drug benefit program, that 48 million Americans are a part of. And it does so in a couple of different ways.

Now the first has to do with patient out of pocket spending. So Medicare Part D is famous for having a benefit design in which patients are responsible for a portion of their drug bill forever and ever, and ever. So, even after they hit the so called catastrophic phase, they're still responsible for a portion of their bill. And that means for a portion of Americans, their Medicare drug bill is very, very, very high. And so what this bill does, is puts a cap on that. So there's now a $2,000 out of pocket maximum that you can spend in your Medicare Part D drugs. Now about 15% of Medicare Part D beneficiaries go over that $2,000 cap now. So that's going to be a real meaningful change for those individuals.

What else does the bill do? It puts some speed bumps when it comes to raising drug prices. So there is now a penalty that will be applied to drug makers who raise their drug prices faster than inflation. Now, the original version of this bill, that punishment would have been really serious, because it would've taken into account all of the sales of the drug regardless of channel. At the last minute, as the Senate was debating the bill, the Senate parliamentarian, narrowed that down so that the penalties are only calculated based on Medicare sales. So that's not quite as big a deal, but nonetheless, there will be punishment for drug companies that raise the price of their drugs faster than consumer inflation.

But the big change and I think the one that most folks have been talking about, is the imposition of price controls or as it's often referred to in the bill, negotiation. We have never in the United States had this before where the government had the ability to come in and dictate the price of a medicine before. Now this kicks in in 2026, but the negotiation process actually begins next fall. So we're not that far away from this being a real part of the US health care system. The bill allocates literally billions of dollars to the Department of Health and Human Services to begin building this edifice, to begin the process of defining what these drug prices should be.

Now there are limits to which drugs are going to be included. And this was the subject of fierce debate really over the last two years. And the way the final bill boiled down, is that starting in 2026, there will be 10 drugs, all Part D, that will be a part of this program. The next year in 2027, 15 additional drugs will have their prices negotiated, again all Part D. The year after that 2028, 15 more drugs, but now they can include both Part D and Part B drugs. Now Part B drugs are hospital administered drugs. These are your infusions, sometimes your injections. And then in 2029, 20 drugs a year additional from Part B and Part D.

Now there's one tweak here, which is that, in order to limit the impact of this and so not to kind of kill the incentives for innovation altogether, the drafters of the bill said for the first nine years of a drugs' lifespan, if it's a small molecule, so your pills and capsules or the first 13 years after approval for biologics, you will not be subject to this Medicare price control/negotiation. This has been a source of some controversy because it doesn't necessarily make sense to incentivize biologics over small molecules, but nonetheless, that's the way it works. So again, over the first nine years for pills, 13 years, you are exempt. And so already there's some discussion of which of those drugs is going to fall into that gap. So you're looking at high spend Medicare drugs that have been on the market for a while.

What's the negotiation process going to look like? That's a really excellent question, because the legislation spells out exactly the minimal discount that the government can ask for. So they can ask for discounts starting at about 25% or 35%, depending on how long the drug's been on the market. The big question is, how much more can the government ask for? Now, there's some elements that the government's been told by the legislation, how to consider that, but exactly what that means mathematically has yet to work itself out. That's going to require a whole lot of regulatory processes and that's really going to be one of the dominant news stories of the next year, is how this whole EDUs gets built?

The other big question is, what kind of counter measures are going to take place by drug makers and others to try to impact the implementation of this and really limit their exposure? So there are a number of different things that are floating out there around right now. There's an argument says that drug makers are simply going to increase the launch price of their medicines. The Congressional Budget Office has suggested that this will happen in order to offset those later years where there's going to be increased pressure on prices. Other economists have said, if drug companies have the freedom to do that, they would already be doing it and there's probably actually not going to be a huge impact on launch prices of drugs. So that'll be something to watch.

The other question is whether or not there are loopholes to be exploited? Drugs will not be part of this negotiation or price control regime if they have generic competition. So there's a question of whether or not there will be any work between drug makers and generic drug makers, biosimilar makers, to kind of take a drug that would otherwise be targeted by negotiations and protect it by dent of generic competition. But again, there are some regulatory, there are some logistical challenges to doing these sorts of things. So all of this is going to work itself out really over the next 12 to 18 to 24 months, as we really get a good feel for how, and when this legislation will go from words on paper, to a regulatory structure, to finally impacting the marketplace. And that's going to be an interesting ride to watch. And I appreciate you letting me share my thoughts with you.