Although it may not have immediate significant impacts for many patients, the Inflation Reduction Act could open the door for future changes.
In an interview with Pharmacy Times, Joey Dizenhouse, senior vice president and head of pharmacy services at HealthTrust Purchasing Group, discussed the recently-signed Inflation Reduction Act and what it means for Medicare Part 2.
Aislinn Antrim: Hi, I'm Aislinn Antrim with Pharmacy Times®, and I'm here with Joey Dizenhouse, senior vice president and head of pharmacy services at Health Trust, to discuss the recent Inflation Reduction Act and how it could impact drug pricing and access and a variety of other issues. So the Inflation Reduction Act had a lot of different pieces in it, but for our purposes, can you review its impacts on Medicare Part D?
Joey Dizenhouse: Thanks for having me today. It's a pleasure to be here. There was certainly a lot in the act that went above and beyond pharmacy-related issues, or Medicare D related issues. First, it gives the government the ability to impact pricing for some drugs on a limited basis, and it's going to ramp up pretty slowly for a limited number of specifically defined products. But it is something and, and so that’s worth looking into, and it's worth trying to understand from a financial and from other perspectives as well.
Secondly, it related to the interestingly named “doughnut hole” in Medicare Part D. Some benefits for beneficiaries in the program where the out-of-pocket costs are going to be significantly rolled back where, today, those patients will pay amounts inside that “doughnut hole,” which will typically get them to up to about $3,000 a year. Then they hit this catastrophic limit, after which they have to pay 5% of their drug costs without limit. So it can be $10,000, $15,000, $20,000 a year to a fixed income individual.
The Inflation Reduction Act is starting with eliminating that catastrophic piece in 2024, which will cap the out-of-pocket costs. Then further and 2025, it'll lower the out-of-pocket costs, no more than $2,000 per person. It'll really materially impact beneficiaries in the program, and I think help reduce the chance of patients that will avoid taking medications they need due to the cost, which can have obviously health implications, but also, it can have financial consequences for exacerbations of illness.
Third, a provision that caps the cost of insulin for Medicare beneficiaries at $35 per month, applies to both the pharmacy and the medical based programs. That will represent a savings as well, the data that I've seen suggest that the average is closer to about $55. So 35 is a savings in Material savings.
Then fourth is a provision related to what we call “price protection,” where Medicare has essentially said that if a manufacturer tries to raise the price of a covered drug by more than inflation that they'll have to scale back that increase or rebate back that excess to the plan or the sponsor, in this case, Medicare. So those are 4 examples of direct impact on the Medicare Part D program that I think are that are pretty important.
Aislinn Antrim: Absolutely, and we'll kind of get into all of those a little bit deeper, but allowing Medicare to negotiate some drug costs has been discussed for as long as I can remember. What does this really mean in practice?
Joey Dizenhouse: It's been going it's been going on for many years, multiple administrations have tried, on both sides of the aisle. It’s hard to say exactly what it means. I believe that it is a step of momentum, right? It is something that will open the dialogue that will start emotional and sort of other visceral responses that will then create more dialogue that will then create more impact. How to predict that impact? There is no crystal ball here. But I do think that it's a step in the right direction.
We spend more on research and development for pharmacy and medical devices than anyone in the world by far. As a result, or at least 1 of the impacts of that, is that we spend 17% of our GDP here in the US on health care. If you look at the other countries in the OECD, the averages are half of that, maybe a little bit more than half. No more than I think 12, which I believe is Switzerland. We're spending much more on a bigger base of GDP.
The data does not suggest that we get better health outcomes than these other nations. For example, our life expectancy at birth, which is one of those key measures, is a couple of years lower than the average of the other OECD nations. Now, there's a lot of moving parts in that kind of a statement, but for spending all this money, and we don't have a measurable impact for it, the question becomes, is it sustainable? At what point does that sort of model fall over? I think that's part of the impetus for this for this discussion.
But what does it really mean? Well, I guess we'll find out because now we have sort of the start of that effect, and we'll get to see how it plays out.
Aislinn Antrim: It'll be interesting. As you said, the bill allows Medicare to negotiate for some specific drugs, which are these and do you think this goes far enough to really lower prices in a significant way?
Joey Dizenhouse: So the second part of your question, first, I don't I don't think it's going to have a major impact in the short term. Again, I think it's an important step. When we look at the scope of the program, it is really limited. Right? And in terms of what drugs will be impacted, the 750 odd page bill doesn't get into that. It parameterizes what drugs will be impacted. It talks about high-cost drugs, it talks about drugs that have been on the market for a certain amount of time from their approval. If we're talking about small molecule drugs, like oral preparations, we're talking about 9 years from when they had their patent sort of opened. So, they've been on their own making money, having exclusivity a monopoly of sorts for 9 years. If we're talking about biologic drugs, or large molecule drugs, if you will, 13 years afterwards.
So, we're only talking about drugs that have been on the market for that period of time. We're not talking about drugs that have biosimilars coming in the proximate future. We're not talking about orphan products or products that don't sell a certain amount of Medicare volume, I think it was 200 million a year.
It’s going to start with a very narrowly defined group of drugs, and it will only be 10 actual drugs for year 1, which will be 2026. From there, it's going to grow, and it's going to grow at a good clip. By 2029, the last year that's mentioned, you're going to have a number of both Part D drugs and Part B drugs in scope. The impact will get bigger and bigger.
But I still don't think even that far out that it's going to be material to the overall economics of these of these schemes because it's still a very small number of products. What I like about it is its sort of like a Goldilocks mentality. We're looking at drugs that have been around a while, they've realized some profits that R&D has started to pay a dividend. They're still really expensive, and there isn't inevitable price competition already coming.
I think from that perspective, I think it's a well-designed sort of codification of which drugs to include.
Aislinn Antrim: Very interesting. I've seen some concern that manufacturers could turn around and raise prices for everyone else to kind of offset the costs. Do you think this is a valid concern?
Joey Dizenhouse: Yes, I do. I share the concern and have heard it discussed in a number of circles. I think we should watch it carefully. By everyone else, I think the commercially insured group of people representing is the largest group to focus on for that, that's the most likely target, if you will. I would expect manufacturers to review the impact of the Act on their budgets and adjust their models accordingly. But how they will specifically react and adjust, your guess is as good as mine at this point.
But I do want to point out that manufacturers can't just raise their price willy-nilly, right? This price protection provision that we talked about in Medicare Part D that's coming. These provisions already exist in commercial agreements a good portion of the time. So in other words, the PBM or intermediary that's negotiating on behalf of the plan sponsors, they've put provisions in place that say something like that. When your drug price goes up, that increase has to be paid back to the PBM in a rebate. In fact, they're typically called Price Protection Rebates.
The question is where does the money go from there? Does the PBM retain the money does the PBM pass that money on to the plan, which would be the employer who would then pass it on to the plan participants in some way. And so that impact, the trickle-down effect is a good conversation, perhaps for another time, but as it relates to the manufacturer, they're not keeping that money as much as one might think at first. So to that extent, their tools and choices in terms of what they can do are a bit more limited. But that said, I expect that they will, they will look to recoup precede losses from the law in ways that they can. It isn't to say that they have no levers available to them only that it isn't quite as intuitive as you might think at first.
Then the other thing is that the kinds of drugs that we're talking about here, that would be targeted by that by the Act year 1, are ones that are not newly on the market and the only drug that treat a condition because those would be the ones that there could be some other implications from this. These are ones where it's a little bit more logical that this provision could work and as a result, I don't think it creates the same level of pressure, but it could. I think that's important to know.