Inflation Reduction Act doesn’t do enough for Medicare beneficiaries and could hinder drug innovation, experts say


Soraya Marashi


The Inflation Reduction Act, signed by President Biden on Aug. 16th, includes provisions to reduce prescription drug costs for Medicare beneficiaries. Some stakeholders in Arizona believe the provisions do not go far enough to minimize the financial burden of prescription drugs for Arizonans, and some believe that the act will negatively impact drug innovation.


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The key provisions affecting prescription drug prices are listed below:


  • By 2026, the federal government will be required to start negotiating prices for select drugs covered by Medicare. Medicare is limited to negotiating only 10 of the thousands of drugs covered under Medicare Part D in 2026, 15 more Part D drugs in 2027, 15 more Part B and Part D drugs in 2028, and 20 more Part B and Part D drugs in 2029 and beyond. The upper limit price will be 75% of the non-federal average manufacturer’s price for drugs 9-12 years post-approval, 65% for drugs 12-16 years post-approval, and 40% for drugs over 15 years post-approval.


  • By 2023, drug manufacturers will be required to pay rebates when they increase their Medicare drug prices faster than inflation.


  • In 2025, Medicare beneficiaries’ out-of-pocket costs for Part D drugs will be capped at $2,000, and the 5% coinsurance requirement above the Part D catastrophic threshold will be eliminated. 


  • In 2023, cost sharing for insulin for Medicare beneficiaries will be limited to $35 per month, and cost sharing for adult vaccines covered under Part D will also be eliminated. States will also be required to cover all vaccines for Medicaid and CHIP beneficiaries.


  • By 2024, eligibility will be expanded for full Medicare Part D low-income subsidies (LIS) to low-income beneficiaries with incomes up to 150% of the federal poverty line.


While the Arizona Public Health Association (AzPHA) has repeatedly expressed their support for the Inflation Reduction Act, it has also maintained its criticisms that the act does not go far enough to reform prescription drug pricing.

“While we’re encouraged that the Act will finally allow Medicare to begin negotiating prices beginning in 2026, we’re disappointed that the Inflation Reduction Act of 2022 doesn’t include the more aggressive and fiscally responsible provisions of H.R. 3 (Lower Drug Costs Now Act of 2019),” AzPHA Executive Director Will Humble said in a letter addressed to Senators Kyrsten Sinema and Mark Kelly in early August. “Those provisions would have allowed Medicare to negotiate the price of between 25-125 brand-name drugs (w/o generic competitors) in 2023 and apply the negotiated price available Medicare, Medicaid & private payers.

Incorporating H.R. 3 into the Act would have also set an upper limit for the negotiated price equal to 120% of the Average International Market price paid by Australia, Canada, France, Germany, Japan, and the UK. It would have also had a much better compliance system, giving HHS authority to impose financial penalties on drug companies that don’t negotiate in good faith.”

Joan Koerber-Walker, President and CEO of the Arizona Bioindustry Association, Inc., told State of Reform that Arizona pharmacists be burdened with managing patient expectations about negotiated drug prices.

“The reality is, those negotiations will be over a number of years, and patients will not see that at the pharmacy counter until 2026,” she said. “It is going to be in many cases up to the pharmacist to explain that to the patient, because patients are going to have an expectation that they’re going to go to the pharmacy counter and something’s going to be different, and it probably isn’t.”

Koerber-Walker also said the act would stifle the drug innovation ecosystem in the state. 

“The majority of life-changing therapies are being developed today at small companies,” she explained. “Those small companies rely on investors to help them develop and get that product, service, or medicine to a stage where larger investors will come in and bankroll it. Life science investors are in the riskiest business because of the regulatory burden, the scientific complexity, and just the pure cost to get to the finish line. 

But we just made them riskier because an investor who decides that they’re going to put $100,000 of their own money into a life science company, they have no way of knowing if 10 years from now that company is going to be on the list and the government will have negotiated price so there’s no profit and they’ll never get a return on their investment. And so those early stage investors are sitting on the sidelines right now trying to figure out what this all means.”

Koerber-Walker added that the revenue or profits from large companies who develop a drug will be converted to taxes to pay for the changes going into effect between now and 2026.

“That’s coming directly out of the pockets of those large companies,” she said. “Those are the same large companies that the innovation ecosystem relies on to invest in the next big cure. We just took roughly $100 million out of the innovation ecosystem over the next 10 years just on the pricing side. When you roll in the taxes and the other changes, now you’re talking maybe four times that—That’s an awful lot of research and development dollars that are now being planned to not be there. And the drug that doesn’t make it may be a drug that you need someday.”