The Inflation Reduction Act: Bad Medicine for Inflation and Innovation

The Inflation Reduction Act of 2022 (IRA) includes $437 billion in new spending, $737 billion in new taxes, and far-reaching implications for drug manufacturers and millions of Americans whose health and well-being depend on treatment innovations. Although the statute’s name promises lower inflation, an analysis by economists at the University of Pennsylvania found that it will actuallyincrease inflation through 2024. From an economic perspective, now is not the time for this law. After all, it was the $5 trillion spent on COVID-19 aid that fueled the current rate of inflation. But why worry about the reckless timing of new spending when you have fleeting power to yield? Democrats are expected to lose full control over Congress in the November midterm election, which caused a rush to enact this law without thorough consideration of the consequences.

Several of the IRA’s drug pricing provisions are deeply disturbing. Pharmacy benefit managers and other intermediaries that have nothing to do with the costly and financially risky development of pharmaceuticals pocket 63% of the price of drugs, on average. Yet they are inexplicably untouched by the law. In addition, the IRA requires that the federal government set the prices of prescription medication. Ten drugs will be subject to government pricing in 2026, an additional 15 in 2027 and in 2028, and 20 more each year thereafter.

Supporters of government price setting have tried to sell the public on its merits by calling it “negotiation.” It is not negotiation because the government holds all the cards. Under the IRA, drugmakers have almost no leverage as they must either accept the government’s offer or face either a 95% excise tax on all U.S. sales or forgo Medicare and Medicaid coverage of the drug.

The law’s promoters also claimed that it would affect only a few drugs. Ezekiel Emanuel, M.D., Ph.D., a health policy adviser to the Obama administration and now a Penn professor, referred to the pricing requirement as a “baby step” saying that “we’re talking about 10 drugs and moving up at the end of the decade to a whopping 20 drugs.” That is misleading because the targets are cumulative, so the prices of 10 drugs will be set in 2026, a total of 60 in 2029, 100 in 2031 and a truly whopping 200 in 2036.

The reignited Cancer Moonshot, a favorite project of President Biden’s, is likely to stall given that 24 cancer drugs will be subject to federally mandated prices by 2032. Who would want to shoot for the moon when oncologists’ reimbursement will be slashed as an unintended consequence of this poorly thought-out statute?

Drugmakers will have to reassess strategies to continue developing therapies and cures for diseases such as cancer and Alzheimer’s. The supposedly negotiated “maximum fair price” will result in significantly reduced Medicare and Medicaid drug payments and may also reduce profits in the commercial market as well. In anticipation of so-called negotiation, manufacturers will be forced to consider launching new drugs at higher prices in attempt to recoup investments before the government’s price goes into effect. For Democrats who think the IRA does not go far enough, higher launch prices will fuel efforts to impose even broader price controls. Congressman Peter Welch (D-Vt.) explained, “Don’t underestimate the power of the slippery slope. That’s exactly why pharma fights so hard. They know if we get price negotiation, it’s the beginning, it’s not the end.”

That is why many lawmakers, policymakers and stakeholders consider the IRA to be the beginning of the end of innovation, as manufacturers and/or financial markets say enough is enough and stop research and development on anything but sure-bet drugs and biologics.

Given the potential loss of countless new lifesaving treatments and of the ability to live longer, healthier lives, the gravity of the situation cannot be overstated.

Marc Samuels is founder and CEO of ADVI Health, LLC, and a member of the Managed Healthcare Executive® editorial advisory board. Lindsay Bealor Greenleaf, vice president and head of policy and reimbursement at ADVI.