Are the IRA Price “Negotiations” or Any Cost Cutting Measures Working?
There has been much written and much discussion concerning the Inflation Reduction Act pharmaceutical price “negotiations.” I put the term “negotiations” in quotes (air quotes to be exact) because they aren’t really negotiations, the government determines the price of the drug, and the manufacturer can either accept that price or have an excise tax which ends up at 95% at the end of the first year. This would mean the manufacturer could sell their drug at $100 and then pay the government a $95 tax, not a viable option if you want to stay in business. The other option the manufacturer has is to be barred from selling their drugs to Medicare or Medicaid beneficiaries, which would put even the largest manufacturer out of business. The only viable option is to accept the government’s price, which is not “negotiations” but price fixing, thus the quotes. Price fixing has proven to be a failure time and again in our economy and it continues to be true in this case. Just as an aside, I’m wondering when the inflation reduction part of the act’s name will kick in rather than kicking our . . . wallets.
The next question is how have these “negotiations” helped you and me. So far, most of the evaluations of the program have shown little reduction in out-of-pocket costs to seniors. One of the advantages touted by the supporters of the IRA’s pricing method was the reduction in the list price which helped those who were paying co-insurance based on that. With the implementation of the $2,000 cap, now $2,160, the list price reduction benefit is minimized for seniors. This cap has been, in my opinion, one of the best changes to Medicare Part D. It immediately helped people who needed it and made planning for retirement much easier for those not yet 65. This positive note is offset by some real downsides to the price fixing approach.
One of the biggest downsides - its potential impact on research and development (R & D). When the IRA was being debated, the drug manufacturers estimated a decrease of over 100 new drugs created while the Congressional Budget Office (CBO), the government watch dog of finances, estimated a decrease of a few dozen, although they added that there needed to be more data available to improve their estimate. After the law was passed and price “negotiations” commenced we began to see the law’s impact on R & D. While it will be years before the true breadth of its impact is known, we do know that the investment in early‑stage small‑molecule research fell 68%. Even worse, these small-molecule drugs are concentrated in diseases heavily used by Medicare beneficiaries, like dementia, prostate cancer, lung cancer, and multiple myeloma. This is a real, not estimated, impact.
There’s another thing that has come out of the “negotiations” that bothers me. By the way, I will continue with the quotes just to make sure you remember that they are NOT negotiations but are actually price fixing. The government has promised more transparency in its operations and is expecting, and in some cases ordering, transparency from organizations that deal with the government, especially in healthcare. They have made public some aspects of the drug selection and information used in the preliminary process of the “negotiations” but will not share any information about the actual “negotiations” that CMS had with each manufacturer. They have said that they will listen to and respond to the information presented by the manufacturer during “negotiations”. If that’s true, why can’t we see that process?
As with all directives issued by the government, whether they be rules, guidance, executive orders, or legislation signed into law, I’m always leery of the unintended consequences. It has become very popular to blame all parts of healthcare for the increase in costs, especially as elections grow closer and the current administration has come up with a myriad of ways to “combat” this increase. There have been tariffs threatened or implemented on companies and on the importation of raw materials and components. Leverage has been brought to bear to bring drug makers to sign deals about prices and the location of manufacturing facilities. There has been continued threats of the use of most favored nation policy to dictate drug prices. Multiple state legislators have proposed or adopted rules governing Prescription Drug Plans in their states that dictate prices for some medicines or types of medicines. While most of these actions pertain to prescription drugs there are some other parts of healthcare that are being singled out. Because healthcare is so interconnected, significant changes in one area often have ripple effects across the broader system. It seems to me that each one of these attempts at controlling healthcare costs has been instituted with no thought to its impact on the other cost controlling actions. It doesn’t seem like there is any overall plan. To me, this is an absolute recipe for unintended consequences.
Who is monitoring the success or failure of each of these approaches? I’ve complained before about the lack of a reviewing process in the IRA drug-price “negotiations.” The law dictates that we will select new drugs to fix their price each year for ten years, without any reporting or review mechanism to see if it’s working. We won’t even recognize the occurrence or extent of an unintended consequence until it’s too late to mitigate the damage.
It seems we are destined to reduce the positive affects of the cap on individual out-of-pocket drug costs by implementing these uncoordinated schemes that could have a real impact on new drug discovery and access, with little guarantee of lower cost to the patient. I think our government can do better.
Best, Thair