The Democrat-backed Inflation Reduction Act (IRA)—rebuked by trade groups and Big Pharma CEOs alike—has officially flown Capitol Hill and been signed into law by President Joe Biden. While it will take several years for the sweeping law’s drug pricing provisions to materialize, the legislation offers the U.S. a chance to make good on decades of talk about slashing prescription drug costs.
Drugmakers’ recent reactions to the rules aren’t surprising. Nevertheless, industry-side brouhaha about price controls has some merit, Moody’s Investors Service analysts wrote in a note to clients Thursday.
In fact, the drug pricing provisions tucked into the IRA could eventually have a credit-lowering effect on the industry at large, because pharma will largely bear the brunt of the changes, the analysts said—despite the fact that several of those measures won’t come into effect for “four or more years.”
For example, the IRA provisions that empower Medicare to haggle over certain drug costs and cap drug price increases to the rate of inflation are expected to save the U.S. government $164 billion over 10 years, the Moody’s team said, citing estimates from the Congressional Budget Office (CBO).
That will likely translate to price reductions on “some products” and “more limited price growth on others,” the analysts explained.
Medicare’s ability to negotiate certain drug costs will have the “largest impact” on the industry, the Moody’s team said. The CBO figures that measure will save the U.S. $102 billion over 10 years, with cost “generally borne by the industry,” the Moody’s team added.
The law will empower Medicare to negotiate prices for 10 medicines in 2026, which will increase to 60 by 2029. In 2026 and 2027, Medicare will only oversee Part D drug prices, but in 2028, it could also negotiate prices in Part B.
It’s not clear exactly which drugs will end up on the bargaining table, though some potential candidates include Bristol Myers Squibb and Pfizer’s Eliquis, Eli Lilly’s diabetes meds Trulicity and Jardiance, AbbVie and Johnson & Johnson’s Imbruvica, plus Gilead Sciences’ HIV therapy Biktarvy.
Aside from price negotiations, tethering drug price hikes to the inflation rate should lead to some $62 billion in federal savings, CBO estimates, as quoted by Moody’s.
Further, the Medicare Part D rework expected to cap out-of-pocket spending for seniors will also be “substantially borne by the industry.”
BMS’ Revlimid, AbbVie and J&J’s Imbruvica, and Pfizer’s Ibrance and Xtandi are “most likely to be hurt by a redesign of Medicare Part D” because they have “high spending tied more to their high prices than to their wide usage,” Moody’s said.
How the law squeezes individual companies remains to be seen, the analysts said. Broadly speaking, however, drugmakers with more U.S.-focused operations, such as Amgen, AbbVie and Gilead, “may have higher exposure.” Companies with lower exposure include ex-U.S. outfits like Novartis, Sanofi and AstraZeneca, plus those with substantial businesses outside their pharma units.
One unexpected side effect of the law? The legislation could prompt an uptick in M&A, the analysts said, explaining that “[r]ising exposure to this social risk will represent an overhang for the industry and is likely to continue to help drive acquisition activity.”
What’s more, the government’s estimated savings will grow over time, “creating a long-term challenge for the pharmaceutical industry.”
While Biden’s signing of the IRA this week has given pharma a bloody nose, many others, including the president himself, have suggested the law’s drug pricing provisions were a long time coming.
“I got here as a 29-year-old kid,” Biden said in remarks published after signing the IRA. “We were promising to make sure that Medicare would have the power to negotiate lower drug prices back then—back then.“
Now, with Medicare’s negotiating power locked into place, “seniors are going to pay less for their prescription drugs while we’re changing circumstances for people on Medicare by putting a cap—a cap of a maximum of $2,000 a year—on their prescription drug costs, no matter what the reason for those prescriptions are,” the president continued.
“This is a Godsend to many families and so, so long overdue,” Biden said.
Some drug pricing experts have also shared positive outlooks, like Stacie Dusetzina, Ph.D., associate professor of health policy and Ingram associate professor of cancer research at Vanderbilt University School of Medicine.
In a recent email to Fierce Pharma, she described the law’s drug pricing measures as “good for Medicare beneficiaries and for taxpayers who fund the Medicare benefit.”
“Though some are disappointed that these provisions apply only to Medicare, it is important to realize that this bill substantially improves the health benefits for 48 million people in our county,” she added. “I think that is a really big deal.”
Still, it’s important to note that with four years to go before many of the IRA’s drug cost provisions take effect, the industry has plenty of time to throw a legal counterpunch.
Further, the pharma sector could angle to influence the rulemaking process and sue to challenge the Centers for Medicare & Medicaid Services’ rollout of regulations, and it might also attempt to "game" the Medicare negotiation process itself, Rachel Sachs, a law professor at the Washington University in St. Louis, wrote in a recent HealthAffairs summary of the bill’s drug pricing elements.