Who will benefit from prescription drug price regulation changes?

The Inflation Reduction Act, passed Aug. 12,  includes a sweeping overhaul of prescription drug pricing regulation. Who will benefit from this and who will not? A panel of consultants from Manatt Health looked at the implications of new federal drug price regulation across the health care system during a recent webinar.

The act has three main provisions that change prescription drug pricing.

1. Price negotiation. Allows the government to regulate the price of certain drugs under Medicare for the first time under the Drug Price Negotiation Program, through which the government must establish a “maximum fair price (MFP)” for certain drugs.
2. Inflation penalties. Requires pharmaceutical manufacturers to pay rebates on drugs covered under Medicare Part B and Part D if they increase prices faster than the rate of inflation.
3. Medicare Part D. Overhauls the Medicare Part D benefit by creating an annual $2,000 out of pocket cap on Part D prescription drug spending.

Five key sectors of the health care system will be impacted by this new regulation. They include drug manufacturers, payers, providers, state Medicaid agencies and patients.

Drug manufacturers

The drug negotiation program will reduce manufacturers’ Medicare revenue form existing brand drugs, said Adam Finkelstein, partner with Manatt Health. Manufacturers of drugs that are not subject to negotiation may also see lower revenue as they compete against complementary products that have a negotiated price. Inflation caps will limit price increases and expected revenue from brand drugs.

One of the biggest advantages to these regulations, Finkelstein said, is that Part D redesign will lower patient out-of-pocket costs. This will have an especially big impact on insulin, specialty drugs and vaccines.

But on the minus side, he said, manufacturers will see lower overall revenue. Manufacturers will have less incentive to research new indications for existing drugs, especially orphan drugs. In addition, Part D manufacturer rebates may be more costly for some beneficiaries than the current Coverage Gap Discount Program.

Medicare Part D plan sponsors

Drug price regulations establish a $2,000 annual beneficiary cost-sharing cap effective in 2025, as well as eliminating catastrophic beneficiary cost-sharing for 2023 and 2024, said Michael Kolber, partner with Manatt Health. Part D beneficiary premiums are capped for 2024 through 2029.

Kolber said that overall premiums – at least initially – will increase due to cost-sharing limits, while beneficiary premium increases will be limited. However, plans will be at higher risk for high-cost drugs and plans may lose rebate revenue from formerly high-priced drugs.

Medicare Advantage plans also will be impacted by price negotiation and inflation rebates on Part B drugs, Kolber said. Negotiated drug prices and inflationary rebates may reduce Medicare Advantage plans’ costs for Part B drugs. However, he said, overall federal payment to Medicare Advantage plans may decline as Part B drug spending moderates, which impacts the fee-for-service benchmark.

Some spillover into employer-sponsored plans also may be seen as a result of negotiated drug prices, Kolber said. Sponsors of employer/union group Medicare plans may see lower costs, he said, and supplementary benefits in group Medicare plans will count toward the new $2,000 patient Part D out-of-pocket maximum, making it more attractive for employers to supplement benefits. Some employers fear that drug costs will shift from Medicare to employers. But the high visibility of the lower Medicare prices could create additional leverage for commercial payers to negotiate lower net prices.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at susan.rupe@innfeedback.com.