The Inflation Reduction Act of 2022, signed into law on August 16, 2022, contains several important provisions regarding health care and drug pricing.1 In this article, I provide an overview of the legislation’s implications for oncology care, focusing on its provisions concerning drug price negotiation and changes to Medicare Part D prescription drug coverage.
Negotiating Medicare Drug Pricing
Beginning in 2026, the Inflation Reduction Act authorizes the Secretary of Health and Human Services (HHS) to negotiate a maximum fair price for certain drugs covered by Medicare. Its negotiation authority will be limited to 10 drugs at the beginning of the negotiation process in 2026, increasing to 15 drugs in 2027 and 2028 and culminating in 2029 and beyond by making 20 drugs subject to negotiation. In 2026 and 2027, only drugs covered by Medicare Part D are subject to negotiation. However, in 2028 and beyond, drugs covered by Medicare Part B—those administered directly by a provider in an outpatient setting—will also be subject to negotiation.
The negotiation process will proceed as follows. To begin, the law directs HHS to select the drugs for negotiation from a “shortlist” of 50 qualifying drugs with the highest total spending in Medicare Part D (and, after 2027, the 50 drugs with the highest spending in Part B). To qualify for negotiation, a drug must have been approved by the U.S. Food and Drug Administration (FDA) for at least 7 years and had a biologic licensed for at least 11 years. Drugs and biologics selected for negotiation also cannot have generic or biosimilar competitors, and certain orphan drugs and plasma-derived products are excluded from negotiation as well.
“Some oncology drugs, such as lenalidomide, are unlikely to be eligible for negotiation because generic competition already exists.”— Govind Persad, JD, PhD
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For negotiating with manufacturers, the legislation directs HHS to consider factors such as the cost of drug manufacturing and production, research and development costs, and the availability of alternative interventions for the same condition. In the negotiation, the maximum fair price is capped at the lower cost of the price paid by Medicare, or some percentage of the average nonfederal price paid to manufacturers. There is also a price floor for drugs manufactured by small biotech firms.
If a manufacturer refuses to negotiate with HHS for a qualified drug, it could be subject to excise taxes on that drug ranging from 65% to 95% of the drug’s price. Manufacturers that do not negotiate can also be subject to civil monetary penalties.
Reducing Costs for Some Chemotherapies
The Secretary of Health and Human Services has not yet proposed a list of drugs for negotiation, since the short list of 50 candidate drugs will not be defined until 2023. Health policy researchers, however, have already identified two cancer drugs as likely candidates for Medicare Part D negotiation.2 They include the cyclin-dependent kinase 4 and 6 inhibitor palbociclib for the treatment of breast cancer and the kinase inhibitor ibrutinib, prescribed for the treatment of B-cell cancers. Although these agents are used in fewer patients than other drugs that comprise a large share of Part D spending, such as anticoagulants, their high per-patient cost—approximately $13,500 per month—puts them in the top group of Part D spending.
In contrast, some oncology drugs are unlikely to be eligible for negotiation because generic competition already exists. An example of a drug that is exempt from negotiation because of generic competition is lenalidomide, prescribed for treatment of multiple myeloma and other blood cancers and is in trials to test its efficacy against other conditions. In 2020, lenalidomide was the drug with the second-highest level of part D spending.3
Lowering Drug Costs via Rebates and Expanded Part D Coverage
Beginning in 2023, pharmaceutical manufacturers will be required to pay rebates to Medicare if they increase the prices of Medicare Part B or Part D drugs more rapidly than general inflation increases. In 2025, provisions in Medicare Part D will change to include a cap on total prescription drug costs, as well as additional cost-sharing assistance for low-income participants. Annual premium increases for these plans will also be capped. Again, this is important for patients with cancer, since many drugs taken to manage disease symptoms and treatment side effects are often prescriptions under Part D.
In addition, the Inflation Reduction Act makes a variety of important changes to Part D, such as lowering the out-of-pocket maximum to $2,000 starting in 2025 and redefining the out-of-pocket maximum to include spending that was subsidized by health insurance or other third-party payers. It also allows patients to spread out their costs for drug purchases over time by making periodic payments.
Providing Access to Affordable Health Care
Several provisions originally included in the Inflation Reduction Act were removed from the bill before passage, because the legislation was passed via reconciliation of a simple majority of 51 votes. Most notably, the Senate parliamentarian ruled that the rebate provision could be applied only to Medicare and not to private sector health plans.
One provision likely to be relevant for oncology is that subsidies for health insurance extended to people with income above 400% of the federal poverty level during the COVID-19 pandemic will be further extended by the bill through 2025. Access to affordable health insurance is typically crucial for patients with cancer, even for those with incomes above 400% of the federal poverty level. Without good insurance, these patients are likely to experience financial difficulties if they must bear the cost of chemotherapy or other costly interventions on their own.
Another important provision expands access to vaccines for Medicare Part D enrollees, which requires that vaccines recommended by the Advisory Committee on Immunization Practices be covered without cost-sharing, such as deductibles or coinsurance. Vaccination prior to chemotherapy may be important for patients receiving drugs that modify immune response. Similar provisions were also added to expand vaccine access for Medicaid enrollees.
Of note, many of the provisions in the Inflation Reduction Act do not go into effect immediately but rather over time. This is particularly true of the drug price negotiation provisions. Thus, it is worth watching to see whether any of these provisions are altered or delayed prior to going into effect.
DISCLOSURE: Dr. Persad has received grant funding from the Greenwall Foundation and personal fees from the World Health Organization.
1. Congress.gov: H.R.5376—Inflation Reduction Act of 2022. Available at www.congress.gov/bill/117th-congress/house-bill/5376/text. Accessed November 29, 2022.
2. Johnson M, Nayak R, Kishore S: Which drug prices will Medicare negotiate first? A physicians’ perspective. September 30, 2022. Available at www.healthaffairs.org/content/forefront/which-drug-prices-medicare-negotiate-first-physicians-perspective. Accessed November 29, 2022.
3. Cubanski J, Neuman T, Damico A: Potential savings for Medicare Part D enrollees under proposals to add a hard cap on out-of-pocket spending. KFF Medicare. Available at www.kff.org/medicare/issue-brief/potential-savings-for-medicare-part-d-enrollees-under-proposals-to-add-a-hard-cap-on-out-of-pocket-spending/. Accessed November 29, 2022.
Editor’s Note: The Law and Ethics in Oncology column is meant to provide general information about legal topics, not legal advice. The law is complex, varying from state to state, and each factual situation is different. Readers are advised to seek advice from their own attorney.
Disclaimer: This commentary represents the views of the author and may not necessarily reflect the views of ASCO or The ASCO Post.