The US Inflation Reduction Act: What Do the Experts Think?

Among the significant measures introduced by the Act, including action on clean energy and climate change, the IRA introduces – for the first time – provisions to reduce federal spending on medicines.

The provisions in the Act relating to pharmaceutical coverage and reimbursement are complex, and include inflation rebates, price negotiations for some Medicare drugs (for the first time), and Part D redesign. I will not explain the provisions in detail here, but for those interested in learning more, you can access a comprehensive description in our freely accessible IRA Educational Program, here. Rather, I describe key perspectives on the IRA and its potential impact, as articulated by experts two weeks ago at the ISPOR Annual meeting held in Boston on May 8th – 10th.

IRA at ISPOR

I had the pleasure to attend the ISPOR International 2023 earlier this month, along with several colleagues. High on my own agenda for the meeting was the IRA and learning about perspectives on its potential impact from US and global policy stakeholders, experts and analysts. Given the controversy over the IRA, it is no surprise that I was not the only one: relating to the IRA were 4 Issue Panels, 1 Discussion Group, 1 Educational symposium, 1 Exhibit Hall Theater session, as well as 15 posters. It also formed the central focus of the conference’s opening plenary session on the Monday morning. For those unable to attend, I plan to summarise the key takeaways from the thought leaders at the conference.

Why is everyone talking about it? The scene was set at ISPOR’s opening plenary

NICE’s Chief Executive, Dr Samantha Roberts, set the tone for the plenary and the conference as a whole by focusing on the issue of affordability.  Health care costs are rising, and governments across the globe are grappling with how to tackle this.

The issue of affordability transcends health care systems. All countries must figure out how to make best use of their finite health care resources on behalf of their citizens. Despite the US being one of the richest countries in the world, health care spending is amongst the highest globally, with high out-of-pocket costs and resulting affordability challenges limiting access to healthcare.

It is this central theme of patient-level affordability that Dr Meena Seshamani, Deputy Administrator and Director of Center for Medicare within CMS, focussed on in her plenary talk.  Dr Seshamani described how the IRA tackles affordability where it matters most – at the pharmacy counter – with measures to ensure diabetes patients can afford insulin, free access to vaccines for Medicare Part D patients, expanded low-income subsidy support, and with out-of-pocket costs limited and smoothed over the year. Her main point was that the benefits of medical innovation will not be realised if access is inhibited because of a person’s inability to pay. Several key provisions in the IRA aim to reduce those barriers.

However, little was said by Dr Seshemani on the price negotiation provisions of the IRA, which formed a key focus of the other panelists, as well as conference sessions to come. This controversial topic was picked up by Dr John O’Brien, president and chief executive officer of the National Pharmaceutical Council (NPC).

The reality, he claimed,  is complicated and the IRA is being applied to to a highly complex system, with many actors who often have divergent and often perverse incentives, working within a system that prefers high list prices for medicines, using rebate dollars to subsidise other activities or to make profits. In other words, we do not have a good way of extracting value from current health care spending, and introducing measures to cut pharmaceutical prices would not necessarily address that. Furthermore, Dr O’Brien highlighted that we should not underestimate the impact the IRA will have on companies “that have brought us into the golden age of innovation”, and that price cuts to medicines will challenge sustained investment in life sciences.

The final panellist in the prestigious opening plenary line-up was Professor Mike Drummond, University of York, and a former Chair of OHE’s Board of Trustees. Mike focused on the potential global ripple-effects of the IRA: given the large market size of the US for global pharmaceutical companies, changes that impact profitability may impact global research and pipeline decisions. He set out a strong case for how, in a global context, affordability is important, but value is critical.

At the end of a dynamic opening plenary, Dr Roberts called to action the community of health economics and outcome research (HEOR) professionals and stakeholders in the room to discuss, debate and advance the role HEOR could play in how the policy unfolds. What follows is my high-level summary of how that played out at ISPOR 2023.

What did we learn?

The full spectrum of provisions was set out and explained in an Educational Symposium organised by the Office of Health Economics[1]. Most attention in presentations, questions, and discussion around the (huge) conference center and across the three days was on the price negotiation provisions of the IRA. I came away from ISPOR with five key takeaways:

1. The IRA is entering a highly politicized environment

In all conversations about the legislation, it was difficult to escape from the fact that the IRA – its provenance, implementation and implications – are highly politicized, and it is very difficult to see or have a neutral position. Nevertheless, many speakers referred to the need for stakeholders to build bridges and work together to make sure that the implementation of the Act, and its long-term consequences, has a positive impact on patients.

The need to bring together and be open to the input of multiple stakeholders was emphasised by both CMS speakers that contributed to the ISPOR program: Dr Seshamani in the opening plenary, and Kristi Martin, chief of staff and senior adviser to the deputy administrator in the Center for Medicare, who spoke at an Issue Panel[2] moderated by Sean Sullivan, University of Washington, on the Monday morning. Ms Martin emphasised that public engagement in these initial phases of implementation of the IRA was critical, and that information collection and open dialogue across a broad range of stakeholders, including patients, companies, plan providers, health care professionals, and academics, among others, was a priority for CMS.

Others disagreed that it is possible to bring stakeholders along with the process and to have a truly informed approach, in the context of such tight timelines for consultation and implementation milestones, which represent statutory deadlines.

The question most raised by the audience across sessions was: how will CMS determine the maximum fair price? The starting point, we heard, is clinical benefit, with consideration of other factors – including manufacturer costs and R&D spend – being used to adjust that starting point (but we do not know how). Beyond the list of “considerations”, for which there has been relatively little detail or elaboration since the publication of the Act last year, we heard no more. Neither did we hear how clinical benefit will be captured and used to inform price.

What we do know is that there are some key terms to be strictly avoided:

There will be no “rationing”.

There will be no use of QALYs.

 2. Valuing health benefits: what are the options?

The “Protecting Health Care for All Patients Act” (H.R.485) bans the use of quality-adjusted life years (QALYs) as a measure of health outcomes to inform coverage decisions in all US federal health insurance programs, on the grounds that their use would be discriminatory. While many experts deem this to be a challenging start to valuing health benefits, what other directions could CMS go in? This formed a key focus of an Issue Panel session[3] moderated by Dr Dan Ollendorf, Tufts Center for Evaluation of Value and Risk in Health, entitled “What Would (Should) CMS Do? A Debate on Options for Drug Price Negotiations”. We heard a historical perspective on the relationship between CMS and value assessment from Sean Tunis, Tufts Center for Evaluation of Value and Risk in Health, and the deeply embedded awkwardness around how to deal with value and cost-effectiveness, leading to the vague language that now exists in the legislation and lack of CMS guidance about how this will be done in practice.

As health economists, the concept of “value”, as the fundamental criteria upon which to base decisions on the efficient use of resources to improve population health, is deeply entrenched into our way of thinking. But what if CMS does not share that perspective at all? What if we are not their target audience? This question was raised by Steve Pearson, Institute for Clinical and Economics Review (ICER), in the same panel session. Dr Pearson proposed potential alternative motivations, including addressing perceived market failures such as not enough generic competition, or even a simple notion of “I want to pay not much more than what they’re paying” (reference pricing).

You can’t sit through many ISPOR sessions without mention of the infamous “value flower”, whose petals represent elements that may be overlooked or underappreciated in conventional drug value assessments. This was alluded to by several presenters in the context of how value might be best captured by CMS. An alternative view was presented by Jane Horvath, Horvath Health Policy and previously Department of HHS, who suggested that its use by pharmaceutical companies to simply add elements of “value” was not right or sustainable (referencing this STATA article), and in any case: would we want value-based pricing when a drug has been on the market for 10 years anyway?

Despite this interesting debate, most presenters and discussion contributors thought that value has a critical role to play in rewarding and thereby incentivising the right kind of innovation, and that the US system would benefit from this being a more transparent, public and open conversation about what value is, how it should be measured, and how it should be paid for.

Dr Sarah Alwardt, Avalere Health, moderated two sessions[4],[5] on the IRA, digging deeper into the value assessment plans and possibilities. Several interesting perspectives were raised, including by Peter Neumann, Tufts Center for Evaluation of Value and Risk in Health, who questioned how CMS will reconcile value-based factors with cost-based factors in their assessments, and to what extent either are relevant when a drug has been on the market for 7 or 11 years.

Interesting insights were also shared with conference attendees in poster format, for example lessons from Germany that could be applicable to determining the Maximum Fair Price (MFP) for IRA price negotiations, including criteria under which premiums could be considered and weighted for treatments representing a therapeutic advance over alternatives.[6] Others hypothesised how evidence will be demonstrated and evaluated to inform price negotiations.[7]

3. Price negotiation or price setting?

For an ISPOR audience, CMS’s “Drug Price Negotiation Program” appears to be the most controversial piece of the IRA. While the process, as laid out by CMS, contains clear timelines for initial price offers, counter-offers, and time windows for negotiation periods, it is unclear how much leverage manufacturers will have in negotiations (most ISPOR discussants thought: not very much). CMS certainly has a strong hand, with high penalties for companies refusing to participate or not accepting the MFP – including high excise taxes as well as civil monetary penalties – with the only exit route being for the company to remove all of its drugs from Medicare and Medicaid.

There is everything still to learn about how the negotiation process will pan out, and relatively little time until we will. But we did receive one nugget of wisdom, from Sean Tunis, on what success may look like: “…if everyone’s mad [British English translation: cross] at the end of the negotiation, you probably got it right”.

4. Impact on launch decisions by manufacturers and investment in R&D is predicted, along with implications for patient access

The US is a large market, and as such, the IRA is expected to have ripple effects outside the US. Most fundamentally, these relate to the clinical and pipeline development strategies of companies. Jens Grueger outlined some of these. Notably, companies will be under pressure to condense timelines for launch and recouping investment, with the timeline for portfolio turnover effectively reducing from around 15 years to around 10. Companies may need to think more strategically about launch indications. Importantly, incentives for manufacturers to research and invest in new indication launches for existing therapies will be curtailed, particularly if a drug is nearing price negotiation time. This could limit new indication launches, an important (and efficient) source of new treatment opportunities, particularly in oncology and for rare diseases.

Also, several mentioned that launch prices may rise, as companies try to compensate for losses they will make at the end of the product lifecycle.

In a session moderated by Prof Lotte Steuten[8], Office of Health Economics, an investor’s perspective was provided by Dr Ravi Mehrotra, 5point0, who estimated that there would be a greater than 20% hit on operating income for the biopharma industry, which would inevitably lead to less R&D. The session also provided one of the few airings in the conference on this topic of the patient’s perspective, with Michael Ward – Alliance for Aging Research – highlighting the implications for patients in disease states with substantial unmet medical need, for whom treatment development may be de-prioritised as a result of some of the IRA’s provisions. Dr Jason Spangler, Innovation and Value Initiative (IVI), also highlighted the imperative need to elevate patient voices systematically, and ensure health equity informs all aspects of the drug price negotiation (noting that, despite health equity being the first pillar of CMS’s strategic plan, it does not currently feature within any guidance or plans relating to the IRA).

To complement the dynamic panels and group discussions on this aspect of the IRA, several researchers showcased relevant insights through posters. These included a prediction that the IRA will negatively impact R&D and lead to manufacturers adjusting their portfolios, launching cousin molecules in parallel for multiple indications, pivoting from diseases afflicting Medicare populations and implementing new pricing strategies and pre-launch negotiations[9]. Qualitative research into the impact of the IRA on oncology portfolios was presented, predicting fundamental changes for industry[10], which was complemented by an analysis of the overall implications of the IRA for drug development, launch, life cycle management and loss of exclusivity.[11] Several studies speculated, or demonstrated through case studies the hypothesised impact of the IRA depending on various factors including drug class, current adherence rates, net price per patient, and competition entry.[12],[13],[14] ,[15] Others looked more specifically at certain areas, such as an assessment of the likelihood that orphan drug indication expansion will be impacted by the IRA[16]. One group of researchers presented an analysis of the exemption criteria for price negotiation, finding that these criteria would rule out around one-third of high spend drugs, but that this is expected to have minimal impact on IRA’s cost containment goals[17].

5. What about other provisions and implications outside of Medicare?

The IRA provisions outside of the price negotiation program received relatively less attention in the ISPOR agenda, but some interesting insights were provided, and CMS were keen to emphasise the benefits to patients in terms of lower out-of-pocket spending. Research was presented in poster format estimating that over 8140,000 beneficiaries would directly benefit from the IRA’s Medicare Part D out-of-pocket spending cap for insulin specifically, saving on average over $30 per month[18].

We also heard about how the IRA may impact the broader US health insurance market, outside of Medicare. For example, some researchers shared insight on how Medicare price negotiations may impact on commercial plans’ approach to managing drugs, finding that the IRA may accentuate downward pressure on drug prices and require post-launch payer negotiations[19],[20]. In addition, interview insights with pharmacy directors were presented, regarding potential unintended consequences of the IRA through benefit and formulary design, for both Medicare and commercial patients in the US, potentially resulting in fewer treatment options and higher costs for certain patients[21].

Where next?

There is certainly more to learn, and more to discuss.

One theme that came out for me as an important opportunity arising from the IRA, is the impetus it will provide to accelerate and advance the collection and use of real-world evidence. After 10 or so years on the market, rigorous data will be expected on the outcomes achieved in practice for Medicare populations, and there will be a real focus by companies to collect and publish those data. What I hope will follow is an increased emphasis and methodological advances in how to collect, analyse, and interpret those data.

IRA implementation is evolving as we speak. Its impacts – which are already being felt – will be the subject of research for years to come.

Citations

[1] Cookson G, Axelsen K & Cole A. Educational Symposium 221:  ISPOR – Explaining the Inflation Reduction Act. ISPOR Annual meeting, Boston, US, 9 May 2023.

[2] Sullivan S, Grueger J, Hansen J & Martin K. Issue Panel 124: ISPOR – Medicare Drug Price Negotiation in the US: Implications, Evidence Needs, and Unanswered Questions  ISPOR Annual meeting, Boston, US, 8 May 2023.

[3] Ollendorf D, Horvath J, Tunis S & Pearson S. Issue Panel 105.  ISPOR – What Would (Should) CMS Do? A Debate on Options for Drug Price Negotiations ISPOR Annual meeting, Boston, US, 8 May 2023.

[4] Alwardt S, Ciarametaro M, Freeman E & Neumann P. Issue Panel 227: ISPOR – Inflation Reduction Act (IRA) Negotiation: Closer to Government Price Setting or Traditional HTA? ISPOR Annual meeting, Boston, US, 9 May 2023.

[5] Alwardt S Caldwell K, Ciarametaro M & Banks J. Exihibit Hall Theater session 213: ISPOR – The Day After Tomorrow: Evidence, Value, and Market Access After the IRA ISPOR Annual meeting, Boston, US, 9 May 2023.

[6] Ecker T, Wasem J, Formica M, Leismann J. HTA89: ISPOR – The Inflation Reduction Act: What Makes a Price a Maximum Fair Price? – Lessons from Germany. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[7] Vyas H, Chawla A. HPR57: ISPOR – Evidence Demonstration Framework for Medicare Part B and D Products Subject to Inflation Reduction Act (IRA) Price Regulations Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[8] Steuten L, Mehrotra R, Ward M & Spangler J. Issue Panel 152.  ISPOR – Considering the Impact of the Inflation Reduction Act on Drug Development and Patients ISPOR Annual meeting, Boston, US, 8 May 2023.

[9] Shah S, Kumar Sabbi T, Ahmad M, Patel K. HPR34: ISPOR – Impact of the Inflation Reduction Act on Pricing, Reimbursement, and Market Access in the US Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[10] Jiang L, Saxena V, Lawless N, Popli M, Stahl J. HPR140: ISPOR – Inflation Reduction Act Impact Assessment on Oncology Portfolio. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[11] Briggs S, Francois C, Auger E, Busch A. HPR95: ISPOR – Inflation Reduction Act: Assessing the Impact for New Drug Development, Launch, Life Cycle Management and Loss of Exclusivity Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[12] Briggs S, Francois C, Auger E, Busch A. HPR58: ISPOR – A Tale of Two Drugs: How the Inflation Reduction Act of 2022 Impacts Drug Classes Differently. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[13] 유 현, Jang M, Kwon T. EE427: ISPOR – Analyzing the Impact of the Inflation Reduction Act of 2022 on Biosimilars in the United States: A Simulation with Adalimumab Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[14] Mock G, Frois C, Bryan A. HPR86: ISPOR – The Inflation Reduction Act in Effect: Implications for Pharmaceutical Research and Development (R&D) Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[15] Aggarwal S, Topaloglu J, Kumar S, Bela A, Topaloglu O. HPR64: ISPOR – Implications of Inflation Reduction Act (IRA) on Budget Impact and Cost-Effectiveness Modeling. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[16] Derrickson W, Leybova L, Soni N, Jamali E. EE274: ISPOR – Is It Worthwhile for an Orphan Product to Expand Indications Given the Risk of Medicare Negotiation?. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[17] Mock G, Frois C, Oden D. HPR49: ISPOR – The Inflation Reduction Act Exclusion Effect: An Analysis of Inflation Reduction Act Minimum-Discount Negotiation Rules. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[18] Varghese I, Liu Z, Kardel P, Sheetz C. HPR135: ISPOR – Inflation Reduction Act (IRA) Impact: Medicare Part D Beneficiaries Out-of-Pocket Spending on Insulin Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[19] Vyas H, Chawla A, Gotbetter W. HPR33: ISPOR – Impact of Inflation Reduction Act (IRA) on Commercial Plans’ Approach to Managing Drugs. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[20] Sidhu C, Connelly B, Blake L, Sullivan N. HPR68: ISPOR – Inflation Reduction Act – Insights and Impact on Different Therapeutic Areas from the US Commercial Payer Perspective. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)

[21] Runyan A, Gonzalez B, Santos R, Merkert J, Honcz J, Murali Dhar K. HPR151: ISPOR – The Effect of the Inflation Reduction Act (IRA) on Benefit and Formulary Design, Including Drug Coverage and Selection, for Medicare D and Commercial Patients in the United States. Value in Health, Volume 26, Issue 6, S2 (June 2023). (Accessed 22/05/23)