The Biden administration’s Inflation Reduction Act (IRA) is putting the reins on how fast drug prices in Medicare can rise without penalties, but it doesn’t control the sticker when a drug initially enters the market. Now, one lawmaker is calling for new measures to close that loophole.
In order to maximize the IRA’s power in lowering drug prices, “policymakers must focus on the next challenge: soaring launch prices,” Rep. Katie Porter of California said in a report released Wednesday. “Bringing down the prices of newly introduced drugs will make the IRA’s policies even more effective.”
Porter was one of the lawmakers who spearheaded the crackdown on Big Pharma’s price hikes in the IRA. Her new report (PDF) focuses on how launch prices of cancer drugs have changed over the years and how new legislation could target rising prices. Cancer is more common among older Americans and is therefore a key part in Medicare coverage, she noted.
Between 2017 and 2021, the inflation-adjusted launch prices for self-administered cancer drugs—which are typically covered under Medicare Part D—increased by 25.8%, according to Porter’s analysis. The average launch price of cancer drugs that are infused by healthcare professionals jumped even more—53%—in the past five years, Porter’s report shows.
The median launch price of self-administered oncology drugs in 2021 was $232,788, up from $188,842 in 2017, Porter's report found. During the same period, the average annual list price for infused cancer drugs rose to more than $283,000, from about $185,000.
Porter’s analysis mirrors findings from a recent IQVIA report, which showed that the number of new cancer drugs that cost more than $200,000 a year is growing fast. Those expensive therapies account for a third of the class in the past five years, versus just 2% in the five years leading up to 2016.
If the trend continues, the average cancer drug launch price will reach about $325,000 per year for self-administered products and more than $525,000 for infused meds by 2026, when Medicare will start to be able to negotiate drug prices under the IRA, Porter predicts.
In measures that are widely lamented by the biopharma industry, the IRA will give the HHS power to directly negotiate prices on drugs that cost Medicare the most, starting with 10 Part D therapies in 2026 and expanding to 20 Part B and Part D drugs in 2029. Among the 10 costliest Medicare Part D drugs in 2020, three were cancer therapies: Bristol Myers Squibb’s Revlimid, AbbVie and Johnson & Johnson’s Imbruvica, and Pfizer’s Ibrance.
But as Porter noted, among the top ten drugs by overall expenses, noncancer drugs such as diabetes and cardiovascular treatments on average reach more than 985,000 patients, compared with just above 30,000 for cancer drugs.
The new law also requires that drugmakers pay rebates if their Medicare prices rise faster than inflation.
“However, inflation rebates alone may not completely solve the problem of excessive drug prices if pharmaceutical manufacturers continue increasing the launch prices for new products,” Porter said in her report.
The biopharma industry has called the new measures “price controls.” Because the law gives small-molecule drugs a shorter, 9-year post-approval window before they can be considered for price negotiation, compared with 13 years for biologics, the industry has also argued that the IRA will hurt innovation, especially for small molecules, which are typically self-administered.
When the IRA was progressing through Congress, some industry experts noted that drugmakers could jack up launch prices to counteract the price-hike clause. But others disagreed, arguing that if biopharma companies could further raise list prices, they would have already done so.
Still, even if biopharma companies don't hit the gas on launch prices to counteract the IRA, the current trend itself is already alarming enough, Porter said.
“Unless Congress expands negotiation authority or reins in launch prices, it is possible that any savings achieved through limited price negotiation would be threatened by excessive launch prices for new drugs,” Porter said.
Regulating launch prices would be far more complicated than managing price increases. Many factors are at play in determining a drug’s price, such as addressable patient population, R&D costs and manufacturing complexity. On the flip side, the inflation rate can be a simple solution to monitoring incremental price jumps.
Porter proposes several measures to keep launch prices under control. Citing similar setups in the U.K., Germany and Switzerland, Porter recommends establishing a national drug pricing review board to suggest drug prices based on clinical benefits. Limiting the launch prices for drugs cleared under the accelerated approval pathway and tying government investments in R&D to price guarantees are also among her policy proposals for Congress.