Highlights:
- The Inflation Reduction Act (IRA) of 2022, provides price negotiating power to Medicare for select prescription medications
- With the bill now turned into law; Medicare can negotiate prices for some of the drugs on which its expenditure is substantial. This may include drugs like Eliquis (Pfizer), Januvia (Merck), Xtandi (Pfizer/Astellas), and Orencia (BMS) among others
- The U.S. Pharma Industry has geared up to fiercely oppose the act by exploring regulatory, legislative, and legal options
The Backstory:
In May 2019, Novartis had launched a life-saving gene therapy; Zolgensma, for the treatment of pediatric Spinal Muscular Atrophy (SMA). The gene therapy is a game changer in SMA management as its widely considered to be curative. It is given as a one-time IV dose, and replaces the defective SMN 1 gene responsible for the disease.
However, when Zolgensma was launched; the industry was not discussing the therapy’s benefits and life-saving edge. Rather the discussion was concentrated on the price of the therapy – $2.125 million! Zolgensma still retains the title of being the costliest therapy on the planet.
The median annual drug price in U.S. rose to ~$200,000 for the newly launched therapies in 2021. This year so far, this number has surpassed ~$250,000. The price tag of therapies in the US market has always been a topic of hot debate. Often, the topic becomes a focal point of political tussle. Recently however; the legislation passed in the form of the Inflation Reduction Act of 2022 gives Medicare the power to negotiate on select drug prices for the first time in history.
The Act:
Till 2005, Medicare did not cover the outpatient prescription drugs. On January 1st 2006 however, the U.S. congress implemented the Medicare Part D which allowed the payment of outpatient prescription drugs via Medicare. Although the Medicare Part D essentially bars HHS from negotiating prices with the industry.
The Inflation Reduction Act of 2022, now gives the power to HHS to identify drugs on which Medicare spends the maximum and then select them further for price negotiations.
The Threat:
Full effects of the act would only come center-stage after 2026. However, almost all the big-pharma giants are expected to face the ramifications in some way. The Inflation Reduction Act provisions for negotiation of 10 drugs in 2026, 15 in 2027, and 2028. Thereafter 20 drugs each year.
The medications which would be considered for negotiations cannot have a generic or biosimilar alternatives available, and they should be on the approved list for quite some time. The act also aims at limiting the per-patient out of pocket costs at $2,000 per year in Medicare along with forcing the manufacturers to pay rebates for any price hike above the rate of inflation.
Based on Medicare’s 2020 spending, the drugs which can become candidates of price negotiations as per analysts, are Eliquis (BMS), Xarelto (J&J), Januvia (Merck), Imbruvica (Abbvie), Prolia (Amgen), Xtandi (Pfizer/Astellas), and Orencia (BMS) among others.
The act may have its share of impact on the long-term revenue projections, the consequences however do not appear to be significant. The current expectation is that the negotiations would result in reduction of select drug costs by 25%. The act also offers opportunity from the expanded health insurance subsidies that can partially offset the price influences.
The Counter:
PhRMA President and CEO Stephen Ubl called the act a ‘Tragic Loss for Patients’. Industry is gearing up to oppose the act in every shape and form possible. Top executives from J&J, Gilead, AbbVie, Novartis, etc. have all voiced concerns and thoughts on the development in respective earning’s calls.
Among the possible scenarios, the Pharma Industry may sue and enter into litigations to challenge the law as the most likely next step. The attempts can be expected to influence the rulemaking. Other counter strategies being suggested; include offering limited competition to products and limiting the volumes. In essence; the industry is ready to tackle this new law from several fronts.