Impacts of IRA’s 3rd Release: Drug Pricing in a Radically Different Market!

Coupling the drug pricing component of the Inflation Reduction Act (IRA) of 2022 with other rule changes affecting several sites of care in the health-care environment will help you understand and prepare for upcoming changes. 

The IRA initiated some of the most significant changes to U.S. prescription drug pricing regulations. Since then, there have been multiple other models and rules that have continued to change or address drug pricing. To recap the provisions of the IRA: The price negotiation program lowers prescription drug costs for seniors by empowering Medicare to negotiate the cost of prescription drugs and aims to target the most costly drugs in the program. The federal government will directly regulate the price of prescription drugs in Medicare, indirectly limit the ability of drug manufacturers to increase wholesale prices and make major changes to the Medicare Part D prescription drug benefit. Medicare Parts B and D gain negotiation powers that apply to the price of a limited number of drugs with no generic or biosimilar competition. Additionally, the Act ended a 19-year-old ban on Medicare negotiating the price of prescription medicines with manufacturers that began in 2003 when they were prohibited from directly negotiating Part D drug prices.

A significant additional benefit of the IRA requires all Medicare Part D plans to cover each of the drugs selected for price negotiation, including all dosages and forms, when negotiated prices take effect. This expands beneficiaries’ access to such drugs. 

2022 (Oct. 1): Initially, Medicare Part B-qualifying biosimilars were paid at average sales price (ASP) plus eight percent of the reference add-on rather than ASP plus six percent to encourage the use of biosimilars with competition, as well as to lower costs for and improve patient access to these products. Medicare Part D drug rebates were altered in this first 12-month period if their prices for certain Part D drugs increased faster than the rate of inflation over the 12-month period.

2023: Cost-sharing began for insulin to ensure those enrolled in a Medicare prescription drug plan wouldn’t pay more than $35 out of pocket for a month’s supply of each insulin they use that is covered by their Medicare prescription drug plan and dispensed at a pharmacy or through a mail-order pharmacy. Medicare Part B drug rebates from the manufacturers were required if prices for certain Part B drugs increased faster than the rate of inflation. Most notably, the first 10 Medicare Part D drugs selected for the Drug Price Negotiation Program were announced with maximum fair prices (MFP) to be subsequently negotiated and become effective in 2026. 

2024: The elimination of the five percent cost-sharing in the catastrophic phase of Medicare Part D kicked in after enrollees reached $7,050 in out-of-pocket costs for covered drugs. (2025 caps to patients’ Part D out-of-pocket costs are $2,000.) Drug Price Negotiation Program prices were published revealing the MFP negotiated for the first 10 selected Medicare Part D drugs effective 2026. (We’ve reached that milestone!)

2025: The out-of-pocket Part D limit fell to not more than $2,000 for prescription drugs that may be paid in monthly increments. A Manufacturer Medicare Part D Discount Program replaced the coverage gap discount program and applies to both the initial coverage and catastrophic phases. The next negotiation cohort of 15 more Medicare Part D drugs were announced with MFPs that go into effect in 2027. 

2026: This is the first year beneficiaries are seeing the negotiating results with the cycle for adding an ever-increasing number of products continuing each year. This first round of price negotiations cut the price of 10 of the most commonly used medications in Medicare by at least 40 percent. The negotiated prices for the first 10 drugs that went into effect on Jan. 1 are expected to save Medicare beneficiaries an estimated $1.5 billion. The key components of the IRA are now fully underway: The Medicare Part D redesign is done, the Medicare Prescription Payment Plan is set and the Drug Price Negotiation Program is effective for 2026. These reforms impact the broader healthcare ecosystem and its key players across the industry, including the pharmacies that service their patients. Eligible patients filling prescriptions for the 10 eligible drugs will pay no more than the MFP. If the pharmacy paid more to acquire the product, it is eligible for a rebate from the manufacturer through the Medicare Transaction Facilitator that is administered by the Centers for Medicare and Medicaid Services (CMS). 

2027 and beyond: At this point in the cycle, Part B drugs are added to the cohort of products subject to MFP negotiation. This will lead to 15 more Medicare Part B or Part D drugs up for price negotiation that will be announced when their MFPs become effective in 2028 and 20 more the next year with the cycle continuing. Medicare’s Part D prescription drug insurance program covers ambulatory care medications and, for the first time, Medicare’s Part B program covers outpatient care such as that provided in infusion centers. This list — along with the common Medicare-covered conditions they treat (and recent one-year Medicare costs associated with them) — includes:1

• Dulaglutide: type 2 diabetes ($4.9 billion)
• Bictegravir/emtricitabine/tenofovir alafenamide (Biktarvy): HIV ($3.9 billion)
• Abatacept (Orencia): rheumatoid arthritis and psoriatic arthritis ($2.5 billion)
• Secukinumab (Cosentyx): plaque psoriasis, psoriatic arthritis and ankylosing spondylitis ($2.3 billion)
• Apalutamide (Erleada): prostate cancer ($1.9 billion)
• Ribociclib (Kisqali): breast cancer ($1.6 billion)
• Vedolizumab (Entyvio): ulcerative colitis and Crohn’s disease ($1.5 billion)
• Abemaciclib (Verzenio): breast cancer ($1.4 billion)
• Botulinum toxin: chronic migraine, overactive bladder, spasticity and other movement disorders ($1.1 billion)
• Lenvatinib (Lenvima): kidney cancer ($1.1 billion)
• Omalizumab (Xolair): asthma, chronic hives and nasal polyps ($1.1 billion)
• Brexpiprazole (Rexulti): major depressive disorder, schizophrenia and agitation in Alzheimer’s dementia ($1.1 billion)
• Tofacitinib (Xeljanz): rheumatoid arthritis, psoriatic arthritis and ulcerative colitis ($1 billion)
• Umeclidinium/vilanterol (Anoro Ellipta): chronic obstructive pulmonary disease ($813 million)
• Certolizumab pegol (Cimzia): Crohn’s disease, rheumatoid arthritis and psoriatic arthritis ($787 million)

Both the Outpatient Prospective Payment System and the Physician Fee Service (PFS) rules set the coverage and administration of Medicare Part B. CMS continues to explore or implement change that affects outpatient use of drugs and biologics. Here are the most impactful to watch for in the upcoming proposed rules for 2027 and beyond:

Drug Price Negotiation Program MFP units will be included in and, thus, will lower ASP (this begins in 2028 when the first Part B drugs are eligible for MFP). CMS clarified that MFP units should be included in the calculation of ASP given their inclusion in the calculation of Best Price under Medicaid. Inclusion of MFP units in ASP is likely to drive ASP prices lower. For each selected drug, CMS will publish an MFP-based payment limit instead of the ASP-based payment limit in the quarterly pricing files starting with Initial Price Applicability Year 2028 when the MFP is live for Part B. As a result, there will no longer be a published ASP-based payment limit for a selected drug while it is subject to an MFP. Spillover effect into the commercial market is expected. This change will have a downstream impact on commercial payers that tie their reimbursement rates to Part B payment rates published in the Part B payment file. Expect lower add-on payments since they’ll be calculated as six percent of MFP instead of six percent of ASP.

The Inpatient-Only price list is shrinking to allow procedures by outpatient providers. This enables outpatient providers, such as ambulatory surgery centers, to be paid for a wider array of services. “CMS believes that the evolving nature of the practice of medicine allows more procedures to be performed on an outpatient basis with a shorter recovery time.” 

According to the Ambulatory Surgery Center Association, “This policy allows for these services to be paid by Medicare in the hospital outpatient setting when determined to be clinically appropriate, giving physicians greater flexibility in determining the most appropriate site of service. The new policy has the potential to improve access to care, and to reduce federal spending because inpatient care tends to be costlier. The elimination of the Inpatient-Only list provides Medicare beneficiaries the ability to work with their surgeon to best determine the appropriate site of care.”