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How Will the Inflation Reduction Act Affect Drug Pricing?

The Inflation Reduction Act, which became law in 2022, contains dozens of provisions aimed at reducing the impact of inflation and shaping consumer behavior. Among its provisions are attempts to lower prescription drug costs for Medicare recipients and to reduce the total amount the federal government spends on prescription drugs.

The Congressional Budget Office estimates that the IRA’s drug price provisions will decrease the federal deficit by $237 billion between 2022 and 2031, write Juliette Cubanski, Tricia Neuman and Meredith Freed at KFF. The law takes a multi-pronged approach to reducing drug costs.

Provisions in the Inflation Reduction Act Related to Drug Pricing

The Inflation Reduction Act contains provisions aimed at several prescription drug-related goals, including:

  • Pharma companies will be required to pay rebates to Medicare if medication prices for drugs used by Medicare patients rise faster than inflation rates.
  • The IRA limits monthly cost sharing amounts to $35 for Medicare patients prescribed insulin.
  • The bill eliminates cost sharing for adult vaccines when those vaccines are covered by Medicare Part D. The bill also seeks to expand access to adult vaccines for enrollees in Medicaid and the Children’s Health Insurance Program (CHIP).
  • Beginning in 2024, the IRA caps out-of-pocket spending for Medicare Part D enrollees. Other changes to Medicare Part D benefits also take effect at this time.
  • Beginning in 2024, the IRA expands eligibility for Medicare Part D benefits under the Low-Income Subsidy program.
  • Beginning in 2026, the Centers for Medicare and Medicaid Services (CMS) will be required to negotiate prices for drugs with the highest total spending under Medicare Parts B and D.
  • Beginning in 2027, the IRA imposes additional delays on implementation of the Trump administration’s drug rebate rule.

By allowing CMS and the Department of Health and Human Services (HHS) to negotiate prescription drug costs, the IRA reverses many of the effects of the Medicare Part D “noninterference” clause, which has long prohibited the Secretary of Health and Human Services from “interfer[ing] with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors” or from instituting a formulary or price structure for reimbursement of covered medications.

Under the IRA provisions, HHS can negotiate prices for up to 250 drugs that contribute to the highest net spending by Medicare Part D and that have no generic or biosimilar alternatives for patients. HHS can also negotiate drug prices covered under Schedule B.

A KFF study found that the top 250 medications in this group account for 60 percent of net total Part D spending, while the top 50 drugs covered by Part B account for 80 percent of all Part B spending.

Doctors in nurse huddled together in discussion; drug pricing concept

How Pharmaceutical Teams, Payers and Providers Can Build on the IRA Provisions

Allowing HHS to negotiate drug prices for Medicare Part B and Part D recipients has broad public support, with 83 percent of respondents in a KFF Tracking Poll agreeing that the federal government should be allowed to negotiate drug prices, write Ashley Kirzinger and fellow authors at KFF.

Other provisions in the IRA will likely reduce costs for Medicare recipients as well. A study by Bisma A. Sayed and fellow researchers found, for instance, that Medicare Part D enrollees would have saved $70 in out-of-pocket vaccine costs on average if the IRA had been in effect in 2021.

Negotiations and other provisions in the Inflation Reduction Act stand to impact not only pharmaceutical companies and Medicare recipients, but others as well. Many patients who cannot afford prescription medications turn to pharma company support programs, for instance, which often seek to help patients enroll in Medicaid or Children’s Health Insurance Program  (CHIP) if they are eligible. The IRA affects vaccine access for Medicaid and CHIP patients and affects other benefits through CMS.

The Inflation Reduction Act seeks to address rising federal drug spending in a complex network of payer obligations and demands. Its various requirements are likely to add complexity to this system in the short term. Tools like all-in-one automated platforms can reduce complexity for individual patients by connecting them seamlessly with providers, payers and pharmacies.

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