Patients vs Pharma – who will the Inflation Reduction Act affect the most?

The Inflation Reduction Act brought in by the Biden administration in 2022 aims to give better and more equitable access to healthcare in the USA. However, pharma companies are now concerned about the other potential costs of such legislation. 

What is the Inflation Reduction Act? 

The bill, brought into force in 2022, focuses on strategies to counter the effects of domestic inflation experienced over the past few years. Massive inflation seen in the recent climate has been largely owing to the global energy crisis. By having uncertain energy projections, markets become more volatile, leading to increased prices in food and energy, driving inflation across multiple sectors and ultimately leading to a global increase in the cost of living [1]. 

While industries are engaging in a shift to relying more on renewable energy sources, the prices for alternative power supplies – that could be needed in times of shortage – increase to meet demand [2]. 

The inflation reduction act sets out certain goals and objectives across the energy and healthcare industries, aiming to support efforts to combat climate change, reduce the cost of living, and improve affordability of medicines. 

The specific goals the Act includes are to reduce carbon emissions by 40% by 2030, to implement historic reduction strategies to forestall inflation, allowing Medicare to contest drug prices, cap cost of medicines to $2,000, lower healthcare premiums, make the ultra-rich pay more in line with their wealth, and tax adjustments across the board [3]. 

The bill proposes substantial investments into two main lines best placed to achieve the above goals. US$396 billion is to be invested into Energy, Security and Climate Change programmes over a 10 year period, and US$64 billion into the Affordable Care Act Extension in the same timeframe [3]. The overall deficit reduction is predicted to come to over US$300 billion. 

The effect of global crises on the pharmaceutical industry

Rising energy costs are causing pharma industry leaders to consider the discontinuation of generics to help to cover costs of development of new drugs. This however pushes the costs onto the consumer by hiking up retail drug prices. This is something that the US Government is acutely aware of, as seen when President Joe Biden and Senator Bernie Saunders requested that Eli Lilly, Novo Nordisk, and Sanofi cut prices of their insulin products dramatically by up to 78%, to come into effect from January 2024 [4]. 

Already pharmaceutical companies have been steadily moving the manufacturing of generics from Europe and the US to Asia to cut costs involved in manufacturing and infrastructure – but this leads to regional monopoly on drug manufacturing of certain products, such as with the manufacture of APIs, which means a less secure supply chain overall [5]. 

The War in Ukraine and the COVID-19 pandemic highlighted the insecurity of the supply chain, and the consequences of having a monopoly. Extended lockdowns in China caused a shortage in APIs and the rocketing demand for medicines to aid Ukraine led to a shortage across the EU [6].  

These issues can increase the disparity in access to medicine globally, add to the economic burden shouldered by the pharmaceutical industry, and it explains why nearshoring and reshoring efforts have been initiated since. If industries can further invest in nearshoring activities the boost in supply and trade could create a more circular economy and help to mitigate rising costs in the long term [7]. 

The IRA hopes to mitigate the effects of climate change on industries, including pharma, by providing energy and climate-based incentives, mostly in the form of tax credits, to a range of bodies including governments, businesses, and corporations. The tax credits are designed to encourage companies to invest in more sustainable manufacturing and distribution processes, as well as waste management and clean energy usage [8]. Green solutions across the value chain lead to a more resilient pipeline and supply chain, and reduces greenhouse gas emissions. 

Effects of the IRA on drug discovery, the prescription drug market, and generics 

The implementation of the IRA in 2022 with the idea of limiting the impact to populations of the increased cost of living, particularly in reference to healthcare is a salient piece of legislation. However, the knock on effects of such legislature could be more complicated than first considered. 

The Centres for Medicare & Medicaid Services (CMS) announced the 10 drugs falling under the part D negotiation ruling on 1 September 2023 [9]. To meet the criteria for the list a drug product must be at least 7 years (for small-molecule drugs) or 11 years (for biologics) post FDA approval by the time the list was published. 

We have seen a lot of novel drug approvals in the last year especially since there has been an increase in the use of new technologies and investment in research and development. 

The act should increase patient accessibility to such innovative treatments. However, some of the indirect effects on the biopharmaceutical manufacturers could lead them to reevaluate research and development budgets, leading to less investment in this area, less innovative treatments being developed, which could then have a more negative impact on the health of the general population, by ultimately limiting the healthcare available to people [10]. 

Pharma companies are warning that the Act could increase competition between pharmaceutical companies. The COVID-19 pandemic and the climate crisis has shown that to make meaningful changes on a global scale, in a timely way, partners in the pharmaceutical industry need to work together even across industries and governments. Limiting the generics industry, imposing price caps, restricting patent applications, could reignite the fierce competition between pharmaceutical companies seen in the past, and rather than encouraging healthy competition to drive innovation the result could be to instead drive up costs. 

What does this mean for patients? 

The Act’s primary goal is to provide affordable treatments to patients under the Medicare Programme, bringing financial and medical relief to many who need it. 

Significant changes have been made to Part D and B of the Medicare programme, these changes include imposing a price cap for each year of $2,000 for out of pocket prescription medications, coming into play from 2025. Currently, yearly prices for prescription drugs are on average $800 more expensive than this new price cap, a difference that is significant to many people in America [11]. These increases over the last few years have led to many people having to make decisions to limit their dosage to make their prescriptions last longer, or even missing refilling prescriptions, decisions that could be very detrimental to their health, purely due to the increased costs that they can no longer afford. 

The Act supports the continued running of community health centres, which provide essential care to those with limited access to healthcare. This access to medical care is also encouraged by the promotion of telehealth, which will particularly benefit more geographically isolated communities or those who experience barriers in transport and travel. 

The price cap will in particular help groups who generally have less access to medicine, groups that may have lower incomes or less financial access, and who, typically, are more vulnerable populations and in need of healthcare the most. Older adults, women, Black, Hispanic or Latino, LGBTQIA+, and disabled people in the US will be in a better position to afford medications once the price cap comes into force. Another aspect of the price capping legislation is that Medicare will be able to negotiate the maximum fair prices for prescription drugs [12]. This initially would benefit those who are more at risk of chronic illnesses as we can see by the first set of drugs chosen for negotiation, coming into effect by 2026 [13].

The long-term effects of the implementation of the IRA are yet to be determined, the hope is that it will positively affect the health of individuals across the USA, with the results of this already starting to show in 2024. In reality this all comes down to the actions of the other players in the system and how well the act is implemented across all aspects, and crucially, whether the Act will remain in place if there was a change in US political leadership. 

For more in-depth discussion on this topic, listen to the CPHI Podcast Series: What does the changing US Pharma market mean for industry and patients alike? Where expert James Manser discusses the arguments from the pharmaceutical companies, and what they can do to best ride out the effects of the Act in the next few years. 

Sources

[1] IMF Blog. How Food and Energy are Driving the Global Inflation Surge. [Date accessed 03/08/2023] www.imf.org/en/Blogs/Articles/2022/09/09/cotw-how-food-and-energy-are-driving-the-global-inflation-surge

[2] GreenMatch. Inflation in Europe Brings Forward Clean Energy Transition. [Date accessed 03/08/2023] www.greenmatch.co.uk/blog/energy-prices-drive-inflation

[3] The US Senate. SUMMARY: THE INFLATION REDUCTION ACT OF 2022. [Date accessed 03/08/2023] www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf

[4] CPHI Online. Eli Lilly, Novo Nordisk, and Sanofi cut insulin prices by up to 78%. [Date accessed 08/08/2023] www.cphi-online.com/eli-lilly-novo-nordisk-and-sanofi-cut-insulin-news120340.html

[5] PharmaVoice. How Europe’s energy crisis is impacting pharma. [Date accessed 03/08/2023] www.pharmavoice.com/news/pharma-energy-crisis-Europe-Teva-generics/635498/

[6] The Medicine Maker. Winter is Coming: How the Energy Crisis Will Change Pharma in 2023. [Date accessed 03/08/2023] https://themedicinemaker.com/business-regulation/how-the-energy-crisis-will-affect-pharma-in-2023

[7] CPHI Podcast Series. The ripple effects of nearshoring in pharma. [Date accessed 08/08/2023] www.cphi-online.com/cphi-podcast-series-the-ripple-effects-of-news121742.html

[8] McKinsey & Company. The Inflation Reduction Act: Here’s what’s in it. [Date accessed 11/12/2023] www.mckinsey.com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it

[9] KFF. FAQs about the Inflation Reduction Act’s Medicare Drug Price Negotiation Program. [Date accessed 20/08/2023] www.kff.org/medicare/issue-brief/faqs-about-the-inflation-reduction-acts-medicare-drug-price-negotiation-program/

[10] L.E.K Insights. How the Inflation Reduction Act Will Impact the Biopharmaceutical Industry. [Date accessed 03/08/2023] www.lek.com/insights/ei/how-inflation-reduction-act-will-impact-biopharmaceutical-industry

[11] CMS.gov. Inflation Reduction Act and Medicare. [Date accessed 22/08/2023]. www.cms.gov/inflation-reduction-act-and-medicare

[12] American Progress. Medicare Drug Price Negotiation Will Help Millions of Seniors and Improve Health Equity. [Date accessed 22/08/2023]. www.americanprogress.org/article/medicare-drug-price-negotiation-will-help-millions-of-seniors-and-improve-health-equity/

[13] CPHI Online. Which 10 drugs are open to price negotiation with Medicare in the USA? [Date accessed 05/09/2023] www.cphi-online.com/which-10-drugs-are-open-to-price-negotiation-with-news122145.html