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IRA – Saving Money, or Playing Politics?
IRA’s drug negotiation choices seem to be much more about the 2024 election than Medicare cost savings in 2026.
By Duane Schulthess, John Lamattina, and Harry P. Bowen
September 13th, 2023
On Tuesday August 29th, the Biden Administration and the Centers for Medicare & Medicaid Services (CMS) announced the first 10 drugs to be selected as part of their signature legislation, the Inflation Reduction Act (IRA).
The linchpin of the IRA has been to lower total Medicare costs. The text of the IRA states clearly that the drugs to be chosen for negotiation are those, “… drugs with the highest total expenditures being ranked the highest.” This language is completely unambiguous; drugs with the greatest total expenditures for taxpayers are the ones to be negotiated.
The IRA also includes provisions that drugs soon to be subject to generic or biosimilar competition are excluded from negotiation. This is logical as once a drug loses its patent exclusivity its price falls rapidly.
Our firm, Vital Transformation (VT), has been at the center of the IRA debate for well over a year. Given the IRA’s clear objective to contain taxpayer costs, we conducted economic modeling which simulated the impact of 10 years of IRA negotiations on Medicare spending and biopharmaceutical company revenues.
The Impact of IRA Policy Expansion Proposals on the US Biopharma Ecosystem
Vital Transformation (VT) modeled the impacts of the drug pricing provisions of President Biden’s 2024 Budget, now proposed by Senators Klobuchar and Welch as the “Smart Prices Act (SPA)”, which would impose government price setting for selected Medicare drugs at only 5 years after initial FDA approval.
We modeled the impacts on industry revenues and future R&D investments and estimated future lost innovation impacts including the impact on industry jobs.
We estimate a loss of between 146,000 – 223,000 direct biopharmaceutical industry jobs and a total of 730,000 – 1,100,000 U.S. jobs across the economy if the proposed IRA expansion were to be implemented.
Looking forward, we estimate that the expanded government price setting could result in roughly 230 fewer FDA approvals of new medicines over a ten-year period, once the impacts are fully reflected in the pipeline.
-> Impacts will be felt most heavily in many areas of unmet need, including in rare disease, oncology, neurology, and infectious disease.
->The most significant ecosystem impacts would be concentrated primarily in CA, MA, and NY.
Had the drug pricing provisions of the SPA been in place prior to the development of today’s top-selling medicines, we estimate that 82 of the 121 therapies we identified as selected for price setting would likely have not been developed.
IRA’s Impact on the US Biopharma Ecosystem
Vital Transformation (VT) modeled and estimated the impacts of the Inflation Reduction Act’s (IRA) pricing provisions for a cohort of the top 200 Part B and D drugs by CMS spend, resulting in 92 drugs impacted by IRA in the next 10 years, which are produced, collectively, by 41 biopharmaceutical companies.
Had the IRA been in place beginning in 2014, we estimate the reductions in revenue on the impacted drugs to be up to 40%. Because of this, between 24 and 49 therapies currently available today would most likely not have come to market and therefore not available for patients and their providers.
Looking forward, we estimate that because of the IRA pricing provisions, the substantial reduction in revenue will significantly narrow investment opportunities. Conservatively, as many as 139 drugs over the next 10 years are at risk of not being developed at all.
Both biologics and small molecule drugs are impacted, with an average reduction in revenue per therapy of $4.9 billion and $4 billion respectively.
IRA provides a negotiation exemption for orphan drugs that treat only one rare disease. This disincentivizes investments in orphan drugs and areas of high unmet patient need as the broader indications will provide a superior return on investment, as much as $500 million over three years.
Based on two impact scenarios, we estimate a loss of between 66,800 - 135,900 direct and 342,000 - 676,000 indirect jobs in the U.S. biopharma ecosystem.
BIO 2023: A Price Control Odyssey : The Inflation Reduction Act’s Effects on the Innovation Ecosystem
The Inflation Reduction Act (IRA) contains some of the most significant changes to prescription drug pricing, reimbursement, and access since the Affordable Care Act was enacted over a decade ago. A new study by Vital Transformation, a health care economics consultancy, looks at the economic impacts on the innovation ecosystem and access to new therapies, with a particular focus on drug discovery and rare disease. As the federal government implements the price control provisions of the IRA, biotech hubs like Boston, Massachusetts- home to a significant number of established and emerging biotech companies- will bear the brunt of those impacts as they manage R&D pipelines.
Panelists, amongst whom Duane Schulthess, CEO of Vital Transformation, will discuss the studies findings, and look at the chilling effects on venture funding, orphan drug impacts, and reduced treatments reaching patients.
Wednesday, June 7, 2023, 1:45 PM - 2:45 PM (EDT) - Session Room 254B (click Read More for the session link)
And if you can't attend the session but are keen to discuss this topic, come and visit the Vital Transformation booth at the BIO Exhibition, we're in booth 1180!