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  • Writer's pictureSAKS Market Access Team

How Payers Say They'll Respond To The Inflation Reduction Act


Hand holding pencil over a clipboard as if taking notes on How Payers Say They'll Respond to the Inflation Reduction Act_SAKS Health Blog Post

On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. Press coverage has focused on the IRA’s significant positive implications for reducing climate change threats and promoting green energy use. At SAKS Health, however, we’re more interested in the legislation’s reforms to prescription drug pricing.


For payers, pricing and coverage dynamics will be mainly affected by two IRA provisions:

  1. Under the coming framework, Centers for Medicare & Medicaid Services (CMS) will be able to negotiate with manufacturers a “maximum fair price” for a limited number of high-cost drugs every year, and

  2. Patient cost-sharing will be reformed, with elimination of patient responsibility for catastrophic coverage, an annual out-of-pocket cap of $2000 for Part D beneficiaries, and elimination of the so-called donut hole


At the start of the year SAKS Health identifies a current topic of interest and conducts our own primary research with payers from our contact database. As in previous years, to better understand perspectives on the impact of these reforms on payers, SAKS Health conducted qualitative research interviews with a dozen US formulary decision-makers representing a majority of US covered lives. Our findings? The IRA is definitely on payers’ radar:

  • Over the next 3 years, the expectation is that cost pressures in some therapeutic areas will be driven more by increased competition from new brands, generics, and biosimilars than by effects of the IRA

  • Many believe that the IRA effects will start to be felt in some categories as early as 2025

  • Payers believe that manufacturers will launch new drugs at higher-than-normal prices to compensate for the loss of projected long-term revenue

  • The higher prices would in turn create new financial pressures on payers and narrow what payers would accept as a reasonable Wholesale Acquisition Cost (WAC) over the medium term

  • While it was generally agreed that the IRA directly impacts Medicare only, many expect that the effects will spill over into commercial business at some point


It seems that nobody wants to be left holding the bill for the IRA if they can do anything about it, including passing the burden to another stakeholder in the system. Too often patients are left holding the bill. Unfortunately, this can undermine the true impact of new, innovative therapies that pharma brings to the market and create distrust of legislation.


Beyond the drug pricing and cost-sharing reforms on which our research focused, the IRA will affect additional health care industry dynamics. We may see, for example, R&D investment shift from small-molecule candidates to biologics, due to their favorable treatment under the IRA. We may see changes in patent litigation strategies now that a drug that successfully fights off generic competition may now be targeted for price negotiation by CMS.


The future remains to be seen, and in the interest of enabling Better Healthcare Tomorrow, we’re continuing to keep our eyes on all of it. Reach out if you want to discuss more details about our findings and how the evolution may impact your brand!

 

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