What The Inflation Reduction Act Means for Drug Prices

My Comments: My wife and I are “elderly” and both of us take a significant number of prescribed medications every day. Fortunately, mine fall into the generic category and my co-pays are relatively insignificant.

However, my wife has diabetes, and the annual cost of insulin is essentially through the roof. Her co-pays are significant for those of us on a fixed income. It’s very frustrating given there is no generic remedy and our care provider, Medicare, has been prohibited from negotiating more favorable prices.

For as long as I can remember, there’s been a prohibition on the books that effectively disallows Medicare/Medicaid from negotiating with the pharma industry when it comes to finding cost savings. New drugs, old drugs, no ability to negotiate a more favorable price for any of us tax paying citizens.

As a longtime observer of this problem, it boils down to the fact the pharma industry has successfully lobbied every Congress along the way to make sure pharma profits remain high. What’s in the best interest of consumers like you and I be damned, along with everyone across every economic spectrum in the country. We are the only free nation on the planet that puts pharma profits ahead of the welfare of its citizens.

Even now with the new Inflation Reduction Act, we could be dead before we see any personal benefit since years will pass before she and I will derive any financial benefit.

These comments, found on a financial website I follow, will give you an idea what all of us are facing as the American population ages. The bias in favor of the pharma industry is clearly apparent, given the built in delays before full implementation of the changes.

by Neuberger Berman \ 26 AUG 22 \ https://tinyurl.com/2h7ha9ku

The recently enacted Inflation Reduction Act looks to rein in prescription drug prices and could impact the pharma industry’s long-term financial performance. However, we believe drugmakers—and their bondholders—are generally well poised to navigate the changes over the next few years.

The new law requires the federal Medicare program to negotiate prices for drugs—primarily those that have been on the market for a while (nine years for small-molecule drugs and 13 years for biologicals) yet still lack generic or biosimilar competition. Prices for up to 10 drugs could be negotiated in 2026, rising to 15 in 2027, and 20 in 2029 and beyond.

Separately, the legislation caps out-of-pocket costs for Medicare prescriptions at $2,000 per year, starting in 2025. Tougher still, the law also requires drugmakers to offer rebates if prescription prices rise faster than inflation.

While these provisions likely will have long-run implications for pharma companies, the impact appears manageable over the mid term.

First, many of the most popular (and expensive) medications among Medicare recipients are scheduled to come off-patent before or shortly after 2026—implying that the new law wouldn’t crimp drugmakers’ sales much more than the market was already expecting.

Second, those caps on out-of-pocket costs for Medicare prescriptions could end up supporting pharma companies’ top lines by helping more seniors fulfill their prescriptions and still make ends meet.

Third, the Inflation Act provides helpful clarity for management teams, giving them ample time to make operational adjustments and absorb the downward pressure on drug prices.

On the flipside, turnover in Congress could impact how key provisions ultimately are implemented—and some teams are wary that the new law could lay the foundation for more onerous demands down the line.

These dynamics clearly bear watching, but we believe pharma companies with strong profit margins and more sustainable pricing models should still be in good shape.