Today, the Centers for Medicare and Medicaid Services (CMS) announced the next list of medicines that will be subject to government price setting under the Inflation Reduction Act (IRA). Out of the selected medicines, more than half are being targeted because of the pill penalty, sending a clear message to innovators that investments into small molecule medicines aren’t worth it despite their value to patients. While CMS repeatedly labels this process as “negotiation,” it bears no resemblance to true negotiations that occur in the competitive market. Rather, the Biden administration is unilaterally setting prices for medicines in a process vulnerable to political influence, with this announcement being rushed out just three days before President-elect Trump’s inauguration.
This price-setting policy ignores the root cause of high out of pocket costs for patients, leaves seniors with fewer plans and choices, and erodes incentives for biopharmaceutical researchers to develop the next treatment for chronic conditions like diabetes, cancer and respiratory diseases.
Here are three reasons why patients are losing.
- The IRA's "pill penalty" will discourage the development of small molecule medicines: treatments that typically come in the form of pills or tablets and are often the most effective, convenient and lowest cost option for patients.
Egregiously, the IRA includes a pill penalty which makes small molecule medicines eligible for price setting before typical generic competition and four years earlier than when biologics can be selected. As a result, eight out of the 15 medicines that were selected for price setting wouldn’t have been eligible had their timelines been in parity with other medicines. This penalty essentially devalues the impact small molecule medicines bring to patients, disregarding the fact that they are essential in the treatment of certain diseases. For example, these medicines are effective in treating mental health conditions like depression, bipolar disorder and schizophrenia due to their unique ability to cross from the blood stream to the central nervous system. And they are also an essential part of the treatment arsenal in the fight against cancer due to their ability to reach therapeutic targets within cells. - Price setting misses the mark when addressing the root cause of high out-of-pocket costs and other barriers to care patients face.
Under the IRA, Part D plans can still impose utilization management tactics, like step therapy and prior authorization, to block patients from getting access to the medicines they need. Part D plans can also move selected drugs to more expensive, non-preferred and specialty formulary tiers that have higher out-of-pocket costs. And some plans could stop covering non-selected drugs outright since they are only required to cover two drugs in most therapeutic classes.
Medicare patients are already facing higher costs, fewer plan options and more access barriers because of the IRA. At the same time, the scheme doesn’t do anything to rein in abuses by insurance companies and PBMs who ultimately decide how much a patient pays at the pharmacy counter. According to a recent study from the Berkley Research Group on the pharmaceutical supply chain, half of every dollar spent on brand medicines goes to entities that play no role in research, development or manufacturing –– insurers, PBMs, hospitals and other middlemen. In fact, seven of the 15 drugs are in classes with average estimated rebating levels of 40% and eight already have estimated rebates above the national Part D average. If the Biden administration was serious about addressing rising health care costs, they should have pursued common-sense reforms that put an end to insurer and PBM abuses. - Patients suffering from chronic conditions will be harmed as CMS continues to discourage treatment choice and future innovation for patients.
The list announced today includes medicines in therapeutic areas that represent some of our health care system’s biggest challenges, particularly chronic diseases like diabetes, cancer and respiratory conditions. CMS’s selection of these medicines, on top of its overly broad interpretation of which drugs can be selected, further discourages investments where progress is desperately needed. For instance, CMS chose two diabetes medicines, which were approved by the U.S. Food and Drug Administration under separate drug applications with different dosing regimens, and unilaterally counted them as one selected medicine. What the selection process ignored was that post-approval research led to a new product with a dosing option that provides patients with a convenient once-daily treatment. By counting these two products as one, CMS sent a signal to divert any future research on formulation improvements that could help patients better manage their condition.
At the end of the day, no one chooses their disease and every patient is different. To effectively tackle disease, we need all the tools in the toolbox and shouldn’t have a policy environment that values one medicine over another just because it comes in a different form. The new Congress should seize the opportunity to mitigate one of the worst parts of the IRA by advancing legislation to fix the pill penalty. Patients deserve better.
Matthew Norawong
Matthew is a senior manager on PhRMA’s Public Affairs team focusing on Medicare, Medicaid, importation and more. Prior to coming to PhRMA, he previously worked as a health policy analyst for National Journal’s Network Science Initiative, primarily supporting companies in the life sciences industry. Matthew completed his undergraduate studies in political science at the University of Washington and subsequently earned a Master of Public Health from the George Washington University. A native of the Pacific Northwest, Matthew currently resides in Washington, DC. Outside of the office, Matthew is an avid runner and enjoys playing bass guitar with his indie rock band.
Matthew Norawong
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Government Price Setting
Part D
Patients are losing as government price setting continues
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