On Sunday, August 7th, the U.S Senate passed a new bill called the Inflation Reduction Act for funding billions of dollars in expenditures focusing on healthcare, tax, and climate programs. The bill further included provisions that provide for Medicare drug price negotiation power, while extending Affordable Care Act subsidies.
The impact on pharma and drug development going forward will change dramatically, adding new uncertainty on current drug pricing structures that will significantly affect the models that pharma is currently depending on for planning and revenue.
What Does This Mean?
Still awaiting to clear a vote scheduled for Friday, August 12th, a yes to this legislation would mean the following:
Medicare would be granted the power to negotiate lower prices on 10 drugs in Part B in 2026.
The number of drugs would grow the next year to 15, and in 2029 every year after 20.
Include a monthly cap on cost-sharing payments for Medicare Advantage and Part D plans in 2025.
Include a $35 cap on insulin for Medicare patients only.
The bill is not centered on Medicare pricing negotiations, but starting from 2023, drugmakers will be required to pay rebates if prices in Medicare rise faster than inflation. Currently applicable to only a few of the costliest drugs under Medicare and drugs with a long market presence, the bill still significantly affects the overall pharma industry.
Compared to other big pharma markets, such as Europe and Japan, the U.S has enjoyed a relatively free pricing environment, which has made the U.S. an attractive market for innovative therapies. With the new bill for pricing reforms, the risks for negative long-term effects on pharmaceutical R&D are high.
However, industry CEOs have in recent weeks said their companies could manage the short-term consequences of the bill, but warned of greater impacts to research over time. The new climate for pharmaceutical drug development is now clearly shifting, calling for new tools to manage the new industry landscape.
The need for tools with the capability to look at modeling within both individual assets and aggregate to the portfolio will be crucial for determining how to optimize ongoing and planned pipeline activities, given what could be a significant reduction in revenue.
Medicare’s negotiating power will increase for the better, while also creating instability in expected revenues and pricing. Pricing will become dynamic, and as such, forecasting tools will move from ’nice-to-have’ to ’need-to-have.’ Agility in planning will ensure that pharma can continue to deliver and maximize innovative drug development solutions; this inherently requires disruptive agility and modeling tools.
Read more about the new bill here: