How will the Inflation Reduction Act affect the biopharma industry?

Disclaimer: This article is meant to be informative only and should not be relied upon as legal advice.

The Inflation Reduction Act (IRA) of 2022 will have a substantial impact on biopharma companies. It is the most significant healthcare legislation since the Affordable Care Act (ACA) in 2010. The biopharma industry should be aware that the IRA will affect drug pricing, reimbursement strategies, and patient assistance program designs.

What is in the Inflation Reduction Act?

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (H.R.5376) into law.¹ The three main healthcare components of the IRA are Medicare prescription drug program (Part D) reforms, inflationary caps in Medicare, and Medicare price negotiation.

Key drug pricing provisions of the IRA include:

Redesigns the Medicare Part D benefit to:
- Eliminate the 5 percent coinsurance above the catastrophic limit in 2024
- Eliminate the coverage gap (donut hole) in 2025
- Create a new manufacturer discount program in 2025
- Establish a $2,000 annual out-of-pocket cap (OOP) for Part D beneficiaries, starting in 2025
  - Permits Part D beneficiaries to “smooth” their OOP costs over the plan year
Requires pharmaceutical manufacturers to pay a rebate to Medicare if they raise their list prices for Part B or Part D drugs faster than the rate of inflation
Allows the Secretary of Health and Human Services (HHS) to negotiate the price of a certain number of high-spend Medicare Part B and Part D drugs, without competition, each year

2026: 10 Part D drugs
2027: 15 Part D drugs
2028: 15 Part D or Part B drugs
2029 and later years: 20 Part D or Part B drugs

In addition, the legislation:

Caps copays for insulin at $35 per month for Medicare beneficiaries; the policy does not apply to people with private insurance
Expands the low-income-subsidy (LIS) to beneficiaries below 150% of the federal poverty level (FPL), up from 135% FPL
Applies $0 cost-sharing for Part D vaccines
Extends ACA premium tax credits through the end of 2025

Inflation Reduction Act timeline

Portions of the legislation will go into effect gradually over the next several years, so it is important for biopharma companies to be aware of the proposed timeline. The IRA implementation timeline for prescription drug provisions includes:

2022

Require drug manufacturers to pay rebates to Medicare Part D if drug prices rise faster than inflation
- Potential impact on the biopharma industry: Companies may be forced to participate in the Medicare rebate program
Penalize drug manufacturers that do not pay the rebate amount by making them pay 125 percent of the original rebate amount
- Potential impact on the biopharma industry: Companies may face large penalties for not paying rebates

2022 – 2025

Extend the enhanced ACA subsidies for an additional 3 years to provide more financial help for people purchasing subsidized health plans
- Potential impact on the biopharma industry: More patients can afford medications, which may lead to higher medication utilization and adherence, and greater access to therapies may offset some of the IRA revenue loss by driving greater sales volumes
Require drug manufacturers to pay rebates to Medicare Part B if drug prices rise faster than inflation Impact on the biopharma industry: Companies are forced to participate in the Medicare rebate program
Eliminate Part D cost sharing for adult vaccines
- Potential impact on the biopharma industry: Greater vaccine access may lead to greater sales volumes
Limit monthly cost sharing for insulin to $35 for people with Medicare
- Potential impact on the biopharma industry: Greater access to insulin may lead to greater sales volumes

2024:

Eliminate 5 percent coinsurance for Part D catastrophic coverage, which caps OOP spending at $3,250
Expand income eligibility to 150 percent of federal poverty level (FPL) for full Part D low-income subsidy benefits
- Potential impact on the biopharma industry: More patients can afford medications, which may lead to higher medication utilization and adherence, and greater access to therapies may offset some of the IRA revenue loss by driving greater sales volumes

2024 – 2026:

Limit Part D premium growth to less than or equal to 6 percent per year

2025:

Add $2,000 OOP cap in Part D and other drug benefit changes
- Potential impact on the biopharma industry: More patients may be able to afford medications, which may lead to higher medication utilization and adherence, and greater access to therapies may offset some of the IRA revenue loss by driving greater sales volumes
Lower Medicare's share of total costs above the spending cap to 20 percent for brand-name drugs and 40 percent for generic drugs

2026:

Limit monthly Part D copayments for insulin to be the smallest of the following: $35; 25 percent of the maximum fair price; or 25 percent of the negotiated price in Part D plans
- Potential impact on the biopharma industry: Greater access to insulin may lead to greater sales volumes

2026 – 2029:

Require a graduated schedule of price negotiation for 60 high-cost drugs covered under Medicare Part D and Part B

Negotiate 10 Part D drugs in 2026
Negotiate 15 Part D drugs in 2027
Negotiate 15 Part D and Part B drugs in 2028
Negotiate 20 Part D and Part B drugs in 2029

Create an upper limit for the negotiated drug price called the maximum fair price
Require that drugs with negotiated maximum fair prices be covered by all Part D plans
- Potential impact on the biopharma industry: Companies may change their portfolio strategies, create more aggressive launch pricing strategies, and spend less on drug discovery and development
Put an excise tax of 65 percent of a drug's sales on companies not complying with negotiation and increase it by 10 percent every quarter to a maximum of 95 percent
- Potential impact on the biopharma industry: Companies may face large penalties for not participating

2027:

Delay the implementation of the Trump administration's Drug Rebate Rule until 2032, which would eliminate rebates between manufacturers and pharmacy benefit managers
- Impact on the biopharma industry: Companies benefit from the delay

How will the IRA impact the biopharma industry going forward?

The annual cap on OOP spending for Medicare Part D and the extension of ACA subsidies will make drugs more affordable for patients, which may lead to higher medication utilization and adherence because patients will be able to afford more medications.

However, this could come at the expense of innovation. The biopharma industry is concerned that the legislation may lead to lower revenues and declines in new drugs.²

Xcenda expertise shows that additional implications may include

Reduced revenue growth and potential for less investment in research and development (R&D
Greater focus on biologics because the legislation favors them over small molecule drugs
Medicare further becomes subsidized purchaser and commercial prices increase

What biopharma companies can do to prepare for the upcoming changes:

Conduct modeling on any increase in Part D liability
Calculate inflation rebate penalties and work toward a long-term strategy on pricing factoring in payer mix
Determine if their drugs may be targeted for negotiation
Conduct financial modeling to focus on the potential negotiation price of drugs
Explore changes to patient programs

What should the biopharma industry do with patient assistance programs (PAPs)?

Since several changes will start in 2022 and 2023, now is the time to start thinking about your PAP. Data analyses and exposure models take time, so reach out to your vendor partners to start planning relevant action items. Implementing changes may require more work than standard operating procedure updates because of budget considerations, system updates, new communication strategies, and education for providers and patients.

The steps you can take are:

Educate yourself on the IRA
- Identify the components of the IRA that will impact your PAP operations
  - Part D cost sharing for adult vaccines
  - $35 monthly cap on insulin
  - LIS eligibility expansion
  - $2,000 OOP cap
Evaluate the impact of your program policy changes
Plan to route vaccine patients back to Medicare
Plan the strategies and implement

Continue to monitor what other similar programs are doingThink ahead for new products that may need to be added to the PAP

The IRA will have a significant impact on Medicare, so the biopharma industry has to start planning now to prepare for the upcoming changes that will affect reimbursement, drug pricing, patient assistance programs, and other aspects of their portfolios. By starting the strategy process early, companies can think ahead and avoid potential penalties.

References

1. H.R.5376 - Inflation Reduction Act of 2022. 16 August 2022. Accessed 4 Nov 2022. Available
at https://www.congress.gov/bill/117th-congress/house-bill/5376/text

2. Newman, Christopher. Pharma earnings outline drug law’s looming impact on sales, development. Biopharma Dive. 9 Nov 2022. Accessed 30 Jan 2023. Available at: https://www.biopharmadive.com/news/pharma-drug-pricing-ira-law-impact-negotiation/636110/