Unless you’ve successfully avoided all news and social media over the last month, you’ve probably heard something about the Inflation Reduction Act (IRA). The IRA, not to be confused with your individual retirement account, will have a pretty significant impact on Medicare and the overall healthcare industry. How will it impact you? First let’s take a look at how we got here.
A Brief History:
In March 2021, President Biden proposed a $2 trillion spending plan, which was later split into two economic plans. One was focused on infrastructure, and the other targeted social spending. Given bipartisan cooperation, the Senate was able to pass the infrastructure bill through their regular process, requiring 60 votes. President Biden signed the infrastructure bill into law on November 15, 2021, while negotiations for the social spending package continued. Currently, the Senate has a 50-50 split between Democrats and Republicans with Democratic Vice President Kamala Harris serving as the tie-breaking vote. In order to move forward with the social spending bill, Democrats planned to use a special legislative process known as “reconciliation.” Why? Any reconciliation bill is “filibuster-proof,” meaning Senators cannot engage in unlimited debate to delay or even prevent a vote.
Unlike the infrastructure bill, Democrats would not have help from their Republican colleagues on the remainder of President Biden’s plan, making it essential that all 50 Senate Democrats were on board with the spending package, known at the time as the Build Back Better Act (BBBA). This proved to be quite difficult for the party, in large part because of moderate Senators Joe Manchin and Kyrsten Sinema. By the summer of 2022, Senate Majority Leader Chuck Schumer and Senator Manchin began meeting regularly in hopes of bringing the bill back from the dead.
They succeeded. After close to a year of negotiations, Senate Democrats were able to pass a narrowed iteration of BBBA, which is a climate, health care, and tax package named the Inflation Reduction Act (IRA). The IRA passed in the House, and President Biden signed the bill into law on August 15, 2022.
What is in this “package” anyways?
Of course the IRA is not strictly a healthcare law, but for the sake of this article, we will only be discussing the healthcare components.
The IRA will:
- Allow Medicare to negotiate drug prices with drug manufacturers for up to 10 drugs in 2026 for Part D (think oral medications/pills) and up to 15 in 2028 for Part D and Part B (think infusions or injections that you receive at a doctor’s office or infusion center). Starting in 2029, the number will go up to 20 drugs per year;
- Require drug manufacturers to pay the government rebates if their prices increase faster than inflation starting in 2023;
- Eliminate 5% coinsurance for Medicare catastrophic drug coverage starting in 2024;
- Establish a $2,000 out-of-pocket cap for Medicare Part D beneficiaries starting in 2025 with the option of breaking that out-of-pocket cost up into affordable payments (there is currently no cap on a Medicare beneficiary’s spending when it comes to prescription drugs);
- Provide free vaccines for Medicare beneficiaries; and
- Expand premium and copay assistance on prescription drugs for all low-income individuals.
So how is this going to work?
The Head of the Centers for Medicare and Medicaid Services (CMS) Chiquita Brooks-LaSure will be the key official tasked with taking the IRA’s healthcare policies and making them a reality. Brooks-LaSure has publicly stated she plans to make each of the deadlines, and we can expect the Department of Health and Human Services (HHS) to begin issuing implementing regulations and guidances shortly. Although CMS is likely still establishing the process for Medicare drug pricing negotiations, we do have a general idea of how this will play out.
First, CMS will establish a Drug Price Negotiation Program that will select Part D and Part B drugs eligible for negotiation, ranking the most expensive drugs based on recent annual spend. CMS will then begin negotiating with the manufacturers of those drugs to determine a “maximum fair price” (MFP). After CMS submits their offer for the MFP along with a justification, drug manufacturers will have 30 days to accept the proposal or counter.
What does that mean for my medications?
Any retail prescription drug that is not administered by a nurse or doctor is usually covered under Part D. These drugs will be the first to go through negotiations and will have MFPs in 2026. However, there are a few caveats: the drug cannot have a generic substitute, the drug must have been on the market for nine years before the MFP can apply, and it has to rank among the highest expenditure drugs for Medicare. The law has similar stipulations for biologics, infusions, or any drug that is provider-administered and falls in the Part B drug category. The drug must be on the market for 13 years and MFPs will apply starting in 2028.
While we can expect everyone from Wall Street forecasters to journalists to start making predictions in the coming weeks on which drugs may be included, these should be considered predictions rather than facts. We should also note that none of this will go into effect overnight. By law, HHS is required to publish the list of drugs selected for negotiation before they begin, giving everyone one to two years of notice. We can make the educated guess that some of the largest drug companies that manufacture infusions will be impacted, such as AstraZeneca, AbbVie, Eli Lilly, and more.
What does this mean for me?
The intention of this legislation is to lower drug costs. The law is expected to lower out-of-pocket costs for Medicare beneficiaries specifically, by ensuring that cost-sharing will be based on that maximum fair price (MFP) discussed earlier. We are hopeful that it will also lower costs for the privately or commercially insured. Along with Medicare price negotiations, the provision that requires drug manufacturers to pay rebates for price increases that grow faster than inflation may assist in slowing annual drug price increases for Medicare and private insurance holders alike.
Where IAF stands:
We hope these provisions will align with the law’s intent and limit out-of-pocket costs and premiums for patients. Furthermore, we hope that by capping Medicare out-of-pocket spending for Medicare Part D (spending on prescription drugs) and instituting a $2,000 cap on spending will eliminate what has been dubbed the “donut hole” and stop putting so much financial responsibility on patients. If the intent of the law is upheld, infusion patients will hopefully begin to experience decreased out-of-pocket spending on their medications.
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