Some in Drug Industry Fear Inflation Reduction Act Could Hinder Drug Innovation

WASHINGTON — The Senate passed the roughly $740 billion tax, climate and health care package known as the Inflation Reduction Act on Aug. 7, by a vote of 51-50. The massive package includes provisions to reduce drug costs for patients and providers by letting Medicare negotiate prices for older drugs that don’t have competition, but some in the industry have concerns over whether this portion of the bill will hinder innovation. 

“Our reading of the bill is that this would have an effect on the ability to bring generic or biosimilar products into market,” said an industry source during a phone call with The Well News.

If the bill passes, it would give Medicare the ability to negotiate with manufacturers for 10 drugs starting in 2026, and 20 drugs within a decade. The bill imposes a penalty of 95% of sales from the year before for any drug manufacturers who do not engage in the negotiations. 

“You can have a drug, nine years down the road, subject to government price setting, and could have spent five years doing [research and development],” the industry source said. 

“The bill doesn’t recognize the value of additional research in R&D,” the source said. 

The bill could impact innovation and lead to fewer cures and treatments, but the question remains of how big will the impact be, the industry source said.

They went on to say the bill doesn’t address the underlying problems patients are experiencing due to insurance design issues.

“It’s a drug pricing bill, but not much is done to fix the drug pricing problem,” they said.

The industry source said that more than 50 cents of every dollar spent on medicines goes to other actors who aren’t actually developing the medicine, and drug spending currently accounts for 14% of the overall health care spending in the country. 

Drugs average 14 years on the market before facing generic competition, according to a letter penned by over 1,200 patients, patient advocates, researchers and small company executives and employees. 

The letter was sent to Senate Majority Leader Chuck Schumer, D-N.Y., chairman of the Senate Finance Committee, Ron Wyden, D-Ore., and members of the U.S. Senate on July 25, indicating they feel that the Senate drug bill fails to deliver adequate relief to the nation’s seniors and families, and is, “bad for biopharma innovation.” 

The Senate bill also proposes to cap the out-of-pocket costs for Medicare beneficiaries to $2,000 by 2025, but the letter writers allege that fewer than 900,000 of the more than 32 million non-Medicaid eligible Medicare beneficiaries had out-of-pocket costs above the $2,000 cap in 2019. 

The bill also increases Part D cost sharing for all beneficiaries from 23% to 25%, but repeals a requirement that health insurers and pharmacy benefit managers pass prescription drug discounts on to patients. 

“Seniors will have no protection from Medicare Advantage plans and PBMs that can continue to pocket savings, even when the government does the negotiation for them,” it says in the letter. 

Since 2016, fewer than half of the drugs which received first approval by the FDA to permit a manufacturer to market certain generic drugs, known as first generics, are commercially available to patients, according to Allen Goldberg, who serves as senior vice president of communications for the Association for Accessible Medicines, a trade association representing the manufacturers and distributors of generic prescription drugs, in an email to The Well News.

Of those the first generics that are commercially available, Goldberg said data shows that only about half were included on formularies of Medicare Part D plans. 

“Once they are added to formularies, first generics are routinely placed on expensive brand drug tiers with higher patient copays, rather than on generic tiers with lower cost-sharing. As a result, seniors do not benefit from lower prices and lower out-of-pocket costs, and taxpayers continue to pay for high-priced brand drugs,” Goldberg said.

“The price setting … will only reduce competition, harm future savings from generic and biosimilar medicines, and increase costs for employers and patients with private insurance,” Goldberg continued.

Despite concerns raised by some in the industry, a report from the Congressional Budget Office finds that Medicare negotiations would not have a big impact, with estimates that 15 out of 1,300 drugs, or 1%, would not make it to market as a result in the next 30 years. 

“Most of the work we will do will be unaffected by the timelines, as it doesn’t go into effect until 2026, and the impact of the bill is not a negative for us,” said David Sanders, who serves as vice president of government affairs and policy at Coherus Biosciences, a biosimilar company working to expand patient access to life changing medicines in regulated markets, during a phone call with The Well News. 

“[However,] we need more encouragement for competition in Medicare Part D,” said Sanders.

Sanders said there are 31 drugs approved as biosimilars, which are administered to a vast majority hospital and physicians under Medicare Part B.

“If it’s one thing we missed in this bill it’s to encourage Medicare to award American products … [to] create more incentives,” said Sanders. 

The House is set to vote on the legislation Friday.

Alexa can be reached at [email protected]