Inflation Reduction Act Drug-Pricing Provisions

Financial Considerations at a Glance

The Inflation Reduction Act of 2022 (“the IRA” or H.R. 5376) was signed into law on August 16, 2022, and includes policy reforms around healthcare, climate change, and taxation. Specific to healthcare, the IRA includes drug-pricing provisions that, as they take effect over the next few years, will significantly impact pharmaceutical manufacturers. Three major drug-pricing provisions are: 1) a requirement that manufacturers negotiate drug prices with Medicare, 2) new penalties for increasing the price of Medicare Part B and D drugs at a rate faster than inflation, and 3) a Medicare Part D benefit redesign.

These drug-pricing provision changes represent a seismic shift in how Medicare will reimburse for prescription drugs, with possible spillover effects on other government programs (Medicaid, 340B Drug Pricing Program, etc.). Despite considerable uncertainty around the details of the IRA’s implementation, there is no doubt that it will affect manufacturers’ bottom lines and could drive fundamental shifts in pricing, contracting, and research and development strategies.

The Department of Health and Human Services (HHS) and the Centers for Medicaid & Medicaid Services (CMS) are moving forward with implementation of the drug-pricing provisions included in the IRA by releasing a memorandum on public engagement and timelines for 2023 and beyond.

Now is the time for manufacturers to assess the financial impact each drug-pricing provision may have on its drug portfolio. Evaluating the IRA’s impact proactively will better position manufacturers to develop strategies and project their financial performance—and even mitigate financial consequences—under the IRA.