Medicare’s planned negotiation on US drug prices will offer relief for patients but is of concern to industry, says GlobalData

With rising inflation and a cost-of-living crunch in the US, the passing of the $740 billion Inflation Reduction Act of 2022, which aims to control and lower prescription drug costs, will be welcome news for patients on a budget. However, although its full effects will not be felt until 2026, few pharma companies will be left unaffected by its provisions, according to GlobalData, a leading data and analytics company.

The Act notably includes the previously announced Centers of Medicare & Medicaid Services (CMS) drug price negotiation provisions, which will allow Medicare the power to negotiate with and supersede the pharmaceutical industry over drug pricing. However, negotiated drug prices will not come into effect until 2026.

As an indication of the sums involved GlobalData Healthcare forecasts that total US pharmaceutical sales of prescription and non-prescription drugs are set to reach $624 billion in 2023. There is also the plan to invest in extending the expanded Affordable Care Act (ACA) provisions for three years, through to 2025.

Cyrus Fan, Pharma Research Analyst at GlobalData, comments: “These new reforms could trigger further drug price controls at a federal and state level over the next two years of the current Presidency. This is something that the pharma industry will be watchful for, as many industry leaders are concerned with these reforms.”

Those who will benefit from the reforms the most are Medicare beneficiaries aged 65 and older, insulin users, and enrollees with prescriptions for high-cost drugs. Other measures will also cap out-of-pocket costs to $2,000 per year, starting in 2025; introduce a $35 monthly cap on insulin for patients on Medicare in 2023; extend ACA subsidies for three years; and ensure drug makers pay rebates to Medicare if drug prices exceed inflation.

Fan continues: “Inflation rates are rising exponentially, so capping drug prices in line with inflation will allow Medicare enrollees to reap the benefits and help reduce federal spending on drugs, which the bill estimates could release savings over the next 10 years of *$740 billion— which includes approximately $265 billion of savings through prescription drug pricing reforms.”

Inevitably, Medicare savings will be made at the expense of pharma company revenues, with many pharma leaders openly expressing concern about the reforms—which they believe could undermine future pharmaceutical innovation and profitability.

Part of the bill includes small molecule drugs being eligible for Medicare negotiations after nine years on the market, or 13 years for biologics. However, pharma leaders have raised the point that these drugs often secure much longer periods of exclusivity than either nine or 13 years, and thus the bill’s provisions would lead to a significant reduction in sales of affected products ahead of generic or biosimilar competition.

Fan adds: “It is not a surprise that the pharmaceutical industry has raised concerns about these drug price reforms, given the potential impact on revenues, and there remains a lot of uncertainty as it is difficult to predict which drugs Medicare will initially target for negotiations and how this will affect individual companies.”

*  Source: The Inflation Reduction Act Bill 2022

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