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Many have celebrated the historic strides in healthcare made with the House passage Friday of the Inflation Reduction Act. While there is widespread praise for the eventual start of Medicare negotiating drug prices, not all believe it will make a huge difference on the drug industry. The Act left out individuals who are covered by private insurance, and left pharmacy benefit managers, who negotiate drug prices, off the hook.

The Inflation Reduction Act includes a provision that Medicare will begin negotiating drug prices in 2026, a top desire by some lawmakers who for years have tried to have more government intervention in the drug pricing industry. The Congressional Budget Office has estimated that the provisions would save the Center for Medicare & Medicaid services nearly $102 billion by 2031. Meanwhile, skeptics say that more government intervention could lead to less innovation and affect the relationship between drug companies and investors.

Steven Bennet, a partner in Frier Levitt’s healthcare practice group, says some parts of the prescription drug industry may be only minimally affected.

“Generally, when drug prices are high or are increasing, industry players that profit from high drug prices financially benefit. Efforts to slow the growth of drug prices or decrease drug prices will have an impact on many of these industry players,” Bennet said. However he concluded that, “The true impact of the relationship between industry players is very complex and the Senate bill may have a de minimis impact on large portions of the industry.”

Bennet pointed out that an earlier draft included inflation rebates for drug price increases in both the Medicare and private insurance marketplace. However, the application of inflation rebates in the private insurance market was removed in the current version.

Another provision that was stripped from the package by GOP lawmakers before it passed the Senate would have placed a cap on the cost of insulin at $35 per month. Although Republican lawmakers nixed the part of the proposal that would lower insulin costs for privately insured patients, they kept the provision that caps the monthly cost of insulin for Medicare patients. 

Also telling is that the prescription drug middlemen—pharmacy benefit managers (PMBs)—are left out, which according to Bennet indicates the Act could have a limited effect on the drug industry. PBMs, which negotiate drug prices on behalf of insurance companies and are often owned by the insurance companies, are in the Federal Trade Commission spotlight for corruption. Even though the FTC is currently investigating the impact of vertically integrated PBMs on the access and affordability of prescription drugs, they’re off the hook in this package.

Bennet said that a provision of the Act that is sure to have a significant impact is the $2,000 cap on the Medicare beneficiary out of pocket cost. “This will lower the yearly costs for Medicare patients that take brand or generic drugs,” Bennet said.

Starting three years from now, Medicare will negotiate prices. But the reach will be limited. Medicare will negotiate drug prices only for 10 high cost drugs that do not have a generic or biosimilar equivalent and that have been on the market for several years, then more drugs will be brought to the table to negotiate as time goes on.

“The impact of this provision on drug makers is muted in the short term, but they will likely evaluate the impact of drug pricing knowing that this negotiating authority is set to expand as time goes on,” Bennet said. 

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