7 reasons why states shouldn’t copy the IRA’s price setting mistake

State governments should use the Inflation Reduction Act (IRA) as a cautionary tale: a misguided price setting policy that will lead to higher costs for seniors and people with disabilities while reducing access to innovative treatments. Here are seven ways the IRA has made things worse, and why state leaders shouldn’t copy it:

1. Reduced Access: Government price setting can spur the increased use of health insurer measures designed to keep patients from accessing specific treatments. The majority (78%) of insurers say they expect to limit therapeutic options in their plans in direct response to price setting, a situation that will greatly decrease patients’ options for medicines.

2. No Out-of-pocket Savings: The reality is most Part D patients are not expected to experience any cost savings from price setting. The administration’s estimated savings for patients of $1.5 billion assumes all patients are enrolled in a Part D plan with standard benefit design – but that’s not the case. Only 2% of non-low-income Part D patients are enrolled in the standard benefit. Most beneficiaries taking medicines selected for price setting are in enhanced plans with fixed copays, so they likely won’t see lower out-of-pocket costs. Sound familiar? Not one state prescription price setting board has saved patients any money to date.

3. Ignores Bad Actors: Adopting the IRA’s price-setting policies will do nothing to address the real drivers of rising costs: insurers and pharmacy benefit managers (PBMs) that control insurance benefit design, what hoops patients must jump through to get their medicines and what patients pay at the pharmacy counter. Patients have seen this in the states too: state price setting boards have so far ignored the role of middlemen in the health care system and their control over what patients pay for their medicines.

4. Restricts Innovation: According to economists, the impact on innovation will be significant. Looking at the next several years, Vital Transformations conservatively estimates that as many as 139 medicines are at risk of not being developed as a consequence of the IRA.

5. Creates a Pill Penalty: Seniors who depend on small molecule medicines (simply, medicines that come in pill or capsule form) will find them harder to access in the future. Under the IRA, small molecule medicines can be selected for price setting as early as seven years after the FDA’s initial approval, which is long before the end of the average 13-to-14-year effective patent life. As a result, this “pill penalty” may discourage companies from researching and developing small molecule medicines at all. Looking at the next several years, experts at the University of Chicago estimate the IRA could lead to a $232 billion reduction in R&D for small molecule medicines.

6. De-centers Patient Voices: Patients and doctors’ voices were largely left out of the Centers for Medicare and Medicaid’s (CMS) approach in implementing the IRA’s price setting policies. Patients have already frequently voiced concerns about whether the state’s price setting board is taking their experiences into account, like the Colorado patient below.

"As someone who takes daily medications, this board is of the utmost concern to me. I was staunchly against the implementation of the drug affordability board initially, and I have been continually disappointed by their disregard for patients throughout the implementation process.

"As the [The Denver Gazette] noted, price caps are not a magic wand that instantly reduces costs. Instead, they pose serious threats to medical research and impose long-lasting consequences on our most vulnerable patients. Further, it is absurd to think that an unelected board should have the authority to undermine what medical professionals deem best for their patients. Not only is that a slap in the face to our doctors, but it can cause severe health complications for patients.” Carl Ecklund, letter to the editor, The Denver Gazette

7. Taxpayers foot the bill. The IRA allocated $3 billion to the U.S. Department of Health and Human Services (HHS) to implement the price setting process. Today, states with existing price setting boards have already spent millions of dollars on creating and supporting the boards, without one dollar saved in any state to show for it. How many more taxpayer dollars should go to creating more unelected bureaucratic barriers rather than passing solutions that could save systemic and patient out-of-pocket costs today?

Rather than adopting the misguided policies of the federal government, states should focus on tackling system-wide abuses by insurers and PBMs to ensure patients have consistent and affordable access to medicines.