What’s Next for Biopharma Under the Inflation Reduction Act


As we approach the one-year anniversary of the IRA being signed into law, questions remain about how the new law will reverberate changes across the biopharma industry.

Inflation Reduction Act is shown using the text and the US flag | Image credit: © Andrii | AdobeStock: 527614812, stock.adobe.com

Image credit: © Andrii | AdobeStock: 527614812, stock.adobe.com

While the industry has received some guidance on the Inflation Reduction Act (IRA), there are still significant questions to address. More details are expected in the coming months. But one thing is already certain: the changes brought by the IRA—headlined by the Medicare Drug Price Negotiation Program and Medicare Part D prescription drug plan reforms—will introduce new considerations and challenges for biopharma companies.

These challenges are already being played out as companies survey the evolving landscape and make business and R&D decisions with the new legislation in mind. For example, two manufacturers recently stated they canceled further research of certain drugs due to disincentives built into the law and its implementation.1 Four manufacturers, the U.S. Chamber of Commerce and PhRMA, an association representing America’s leading biopharmaceutical research companies, have also filed six separate lawsuits challenging the IRA (as of July 25, 2023).

While some of the most significant changes won’t take effect until 2025 (full Part D reforms) and 2026 (first-year negotiated prices are applicable), biopharma companies and their partners should prioritize planning now to ensure they understand the law’s provisions and how it will affect their portfolios, including market access engagement, pricing strategies, and patient assistance programs. The time to act is now, even while some aspects remain unclear.

Navigating uncertainty with changes on the horizon

Inflation Reduction Act’s impact on the healthcare industry

The Inflation Reduction Act will impact various elements of health care, with the most significant being a true out-of-pocket cap in Medicare Part D (Drug Coverage) and drug price negotiations within Medicare.

  1. Medicare Part D plan reforms include the $2,000 out-of-pocket (OOP) cap with a mechanism to smooth patient OOP costs more evenly on a monthly basis starting in 2025. Additionally, patient OOP costs will be capped in 2024 at the catastrophic threshold and all low-income-subsidy enrollees will enjoy the full benefit of the program.
  2. Manufacturers must pay a mandatory rebate if drug prices increase faster than inflation for certain Part B and Part D drugs. Failure to comply with the drug-rebate requirements will subject manufacturers to strict penalties.
  3. The legislation will also implement negotiations on drug prices in Part B and Part D via the Medicare Drug Price Negotiation Program. The program focuses on single-source drugs with high utilization within Medicare and will apply to certain drugs in 2026 through 2029 and beyond.
  4. Biosimilar reimbursement in Part B is also changing. As of October 2022, providers are reimbursed the Average Sales Price (ASP) of the biosimilar plus 8% of the ASP of the reference product.
  5. The Affordable Care Act subsidies to purchase insurance on the exchanges or marketplaces are extended through 2025.

Here’s what we know: the IRA includes several core components related to health care, including Medicare Part D reforms (including a yearly cap on out-of-pocket prescription drug costs), an inflation rebate provision, Medicare drug price negotiations, and biosimilar reimbursement in Part B.

As part of the law, Medicare (for the first time) is required to negotiate the price of certain Medicare Part B and Part D drugs through the Medicare Drug Price Negotiation Program. The Centers for Medicare & Medicaid Services (CMS) in March released initial guidance related to the program, outlining the required data for submission, the ceiling price for a negotiated drug, the starting price points for negotiations, and the timeline for the process.2 On September 1, CMS will release the 10 Part D drugs it selected for negotiation for initial price applicability year 2026. Manufacturers of the drugs must enter into an agreement to negotiate with CMS by October 1, starting a negotiation process that ends August 1, 2024, the date that the manufacturer must agree to the price or face stiff financial penalties.

While CMS has been largely focused on the negotiation regulatory guidance, many questions remain about the Part D redesign. After the Part D plan sponsors submit their bids and formularies for the 2024 plan year to CMS for review in early June, they will shift their focus to negotiations with pharmaceutical manufacturers for formulary coverage and positioning for 2025. However, before sponsors can plan their 2025 benefit designs, there is a need for further regulatory guidance. We anticipate CMS will release that in the coming months.

Create a robust strategy to manage the implementation process

With more changes set to take effect in the next couple of years, biopharma companies should take the following steps:

  1. Shape regulatory guidance.As mentioned above, CMS is incredibly busy from an implementation perspective. Partner with your government affairs and policy teams to provide your perspective on the regulatory guidance from the agency. Prepare comments and give feedback to policy and government affairs colleagues on how changes will impact patients and patient access.
  2. Gauge the impact.Model the impact of these changes on your patients, your organization, and your Part D plan customers. Consider the new financial liability (on the Part D side), but also what it means for Part D plans themselves as you construct your contracting strategy.
  3. Develop your strategy. Develop a robust strategy focused on the core IRA elements. As an example, for the Part D benefit redesign, you can focus on three components of financial impact on your company, contracting strategy with Part D plans, and patient assistance program changes.
  4. Implement your strategy. Gain leadership approval for key recommendations from your strategy. Put together a tactical playbook that extends through 2025 and potentially beyond.
  5. Communicate with key stakeholders. Communication with internal and external stakeholders is critical to your success. Connect with payers and providers—as well as patients to help them understand how the changes impact them. Internal communication is also vital to key audiences within your organization.

Looking ahead

Driven in part by the inflation rebates and the drug negotiations, we anticipate the implementation of the IRA provisions will lead to change across the industry, including an adverse impact on pipeline products (especially pre-clinical and early-phase products).

While CMS will provide more guidance in the coming months, answering some of the outstanding questions, it’s important that biopharma companies—and their partners—continue to monitor the latest developments and start to develop a strategy that will enable them to navigate these changes. By developing a robust strategy that extends through 2025, biopharma companies will be better positioned to anticipate and overcome challenges throughout the implementation process while continuing to support the patients they serve.


  1. Council for Affordable Health Coverage, "How the Inflation Reduction Act is Impacting Rare Disease Patients” (March 1, 2023). https://www.cahc.net/newsroom/2023/3/1/how-the-inflation-reduction-act-is-impacting-rare-disease-patients
  2. Centers for Medicare & Medicaid Services, “Medicare Drug Price Negotiation Program: Initial Memorandum, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2026, and Solicitation of Comments,” March 15, 2023. https://www.cms.gov/files/document/medicare-drug-price-negotiation-program-initial-guidance.pdf
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