Unpacking the Inflation Reduction Act
H.R. 5376, also known as the Inflation Reduction Act, is a recent milestone legislation, with strong bipartisan and public support, passed by the federal government and signed into law by President Biden on August 16, 2022. Along with provisions that outline new regulations on corporate tax reform, energy, and environmental policy – the Act also addresses healthcare and prescription drug costs. Some of these changes may have a significant impact on pharmacies across the nation.
In brief, the prescription drug provisions of the Inflation Reduction Act aim to lower healthcare costs through several mechanisms:
Limit out-of-pocket costs for Medicare recipients – Beginning in 2025, the annual out-of-pocket maximum for Medicare recipients will be $2000, with annual adjustments after that. Annual premium increases are also capped at 6%. For reference, approximately 1.4 million Medicare recipients incurred out-of-pocket drug costs of over $2000 in 2020. This provision is estimated to cost $30 billion over 10 years.
Cap insulin co-payments at $35 per month - Beginning in 2023, out-of-pocket costs for insulin products will be capped at $35. In 2026, the cap will be $35 or 25% of the government’s negotiated price, whichever is less. The Act also waives the deductible for insulin covered through DME services. This is especially welcome news to the millions of insulin-dependent Medicare recipients who have struggled with the high cost of insulin. Although many Medicare Part D plans have already placed insulin products in the preferred drug tier of their formularies, co-insurance costs in the coverage gap (“doughnut hole”) have often exceeded $100 or more per month. The cost of this provision is estimated at $5.1 billion over 10 years.
Allow Medicare to negotiate prices for prescription drugs – Beginning in 2026, the Centers for Medicare and Medicaid Services (CMS) will be required to negotiate maximum prices for high-cost drugs, including brand-name drugs with no generic equivalents. CMS must negotiate the price of 10 drugs in 2026, increasing to 20 drugs in 2029 and thereafter. The drugs that CMS selects for negotiation must have prior market approval for at least 7 years (11 years for biologic drugs). The negotiation provision will save an estimated $98.5 billion over the next 10 years, per the Congressional Budget Office.
Mandatory rebates – Manufacturers must issue rebates to CMS for brand-only drugs for which prices rise faster than the rate of inflation. This provision is expected to reduce the federal deficit by a net $63.2 billion over 10 years.
No costs for vaccines – The Act will eliminate out-of-pocket costs for all adult vaccines.
This legislation is expected to have a major impact on cost savings for both CMS and Medicare recipients. The sum of its provisions will reduce the federal deficit by an estimated $237 billion over the next 10 years. For additional information, see the official White House Fact Sheet on the Inflation Reduction Act. You can also read the full text of the bill at www.congress.gov. For a detailed analysis of impact and cost, check out this terrific article by the Kaiser Family Foundation, Explaining the Prescription Drug Provisions in the Inflation Reduction Act.