How the IRA Could Raise Drug Prices and Limit Access to Convenient Biologics

The Inflation Reduction Act (IRA), passed on August 12, 2022, was projected to save the federal government more than $100 billion over 10 years through Medicare drug price negotiations. New evidence suggests the law may instead raise long-term drug prices and steer Medicare plans away from covering convenient subcutaneous (SC) versions of biologic drugs.

A new paper from University of Chicago researchers concludes that the IRA's price controls will likely increase long-term prices of medicines. The finding stems from the complex relationship between prices of brand-name drugs still protected by patents and the much lower prices of generic and biosimilar therapies that arrive after market exclusivity expires. The IRA concerns price controls on brand-name drugs that make up less than 10% of prescriptions, with 90% of prescriptions written for generics and biosimilars. The evidence base shows that when there is just one generic competitor to a brand-name drug, the generic costs about 79% of the former brand-name drug's price, on average; with five generic competitors, the average price falls to roughly 49%; and with 10 or more competitors, it drops to about 16%. Since 2015, manufacturers have launched at least 67 biosimilars in the United States, saving Americans a collective $56.2 billion. Some top-selling biosimilars today are priced at about 20% of the branded product's list price.

Research has found that, on average, every additional $140 million in sales a brand-name drug generates in the year prior to losing exclusivity is associated with roughly one additional generic entrant. Medicare's price controls take effect before generic or biosimilar competition emerges, shrinking the prize available to future generic and biosimilar developers. The analysis of the first 25 medicines for which Medicare officials have set government prices estimates that the price controls have or will reduce those drugs' net prices by about 37% on average. In the model, that drop leads to a 38% decline in the number of generic or biosimilar competitors coming to market, making post-exclusivity generics and biosimilars 45% higher in price. All told, average prices for those 25 drugs in the three and a half decades after price setting takes effect will be 21% higher than they would be without price setting.

Separately, starting in 2025, the IRA limits Medicare patient out-of-pocket costs for self-administered drugs to $2,000 per year, while the same drug delivered as an IV has a $9,350 cap for in-network Part A/B services (Medicare Advantage) or no cap at all (traditional Medicare). For a hypothetical therapy with both IV and SC options at a $60,000 list price and 20% co-insurance, traditional Medicare is responsible for only 80% of the net cost for the full year for the IV, while for the SC, Medicare starts paying the full cost in April (or earlier) when the $2,000 cap is exceeded. For the health plan, covering the SC option can cost more because of the difference in out-of-pocket caps. This creates an incentive for Medicare plans to favor IV coverage, even though SC versions demonstrate the same efficacy and safety as their IV counterparts.

Early evidence shows this pattern in specialty immunology therapies for rheumatoid arthritis, Crohn's disease, and generalized myasthenia gravis. Among the top 10 Medicare Advantage plans, only Kaiser Permanente Senior Advantage covers all four SC formulations examined. The biosimilar TYENNE SC achieves higher coverage than branded ACTEMRA SC, but 4 of the top 10 plans exclude TYENNE SC while including ACTEMRA IV, which has a substantially higher list price. When coverage is limited to self-administered drugs under Medicare Prescription Drug Plans, coverage rates for SC formulations tend to be lower. Commercial health plans, by contrast, show a smaller gap between IV and SC coverage, partly because many have higher annual out-of-pocket limits and potential for manufacturer-sponsored patient financial support. Legislation requires Medicare Advantage plans to "substantially" cover oncology drugs, but no such "protected class" exists for immunology drugs. The data illustrate that convenience does not automatically translate into payer support.