The Inflation Reduction Act (IRA) vs. Rising Drug Prices

How will the Inflation Reduction Act combat rising drug prices? Why are pharmaceutical companies fighting back?

In 2022, President Biden signed into law the Inflation Reduction Act, which aims, among other things, to reduce spending by Medicare on prescription drugs. The pharmaceutical industry has launched a series of lawsuits to stop the act from taking effect.

In this article, we’ll examine the context that brought about the new law and the pharmaceutical industry’s opposition.  

Arguments Over the IRA

In 2022, President Biden signed into law the Inflation Reduction Act (IRA) aimed at tamping down price increases. Part of the Inflation Reduction Act is reducing drug prices by allowing the Department of Health and Human Services (HHS) to negotiate prices for some drugs covered under Medicare Part D, the prescription program covering Americans aged 65 and older. 

Why Does the IRA Address Drug Price Negotiations?

The increased costs that Medicare Part D has been facing in recent years are largely due to a noninterference clause in its rules, which forbids the federal government from negotiating drug prices on behalf of the smaller, individual Medicare Part D plans that directly cover patients. 

Because of this clause, thousands of small plans negotiate drug costs with pharmaceutical companies on their own, and without the leverage that comes from size, they’ve been unable to secure favorable prices. They’ve found it difficult to keep up with resulting cost increases and thus have shifted some of the expenses onto beneficiaries, who are then facing higher premiums, drug costs, deductibles, and copays.

The IRA will try to relieve these burdens by allowing the HHS to negotiate prices collectively for the smaller Medicare Part D plans.

Industry Opposition

Critics of the law contend that the current system provides patients with a wide choice of medication and that tampering with the program risks limiting patient access to needed treatments.

However, proponents of the act contest the idea that the current system serves patients well, arguing that the law has come about in response to how much Medicare Part D has been costing in recent years. They also note that the law is designed to focus only on a small number of drugs that have a large impact on spending—its purpose is not to impose price regulations on drugs overall.

Lawsuits

Several major pharmaceutical companies, along with some industry lobbyists and the US Chamber of Commerce, have filed lawsuits aimed at stopping the act from taking effect. One of these focuses on the Act’s potential effect on the development of orphan drugs, while the rest allege Constitutional violations.

Orphan Drugs

The most recently filed suit, from AstraZeneca, argues the law violates the Orphan Drug Act by limiting the time period that rare-disease drugs are protected from price controls. 

Though the IRA exempts orphan drugs and exempts some others from price negotiations for either 9 or 13 years, critics say this isn’t long enough, arguing that it sometimes takes that long for researchers to recognize additional indications for a medication. They contend that price caps will dissuade drugmakers from pursuing these secondary indications, and thus patients will end up with fewer treatment options.   

Constitutional Violations

Additional lawsuits, from Merck, Novartis, Bristol Myers Squibb, and others, allege that the new law violates the Constitution in various ways. They say it violates:

• The First Amendment by forbidding drugmakers from disclosing certain information they receive from the government. 
• The Fifth Amendment by taking private property without “just compensation.”
• The Eighth Amendment by denying due process to pharmaceutical companies.

Legal experts note that many of these are based on weak arguments. Regardless of their merits or motives, though, it’s likely that at least one of the suits will end up in front of the Supreme Court. Any subsequent ruling, whether for or against the IRA, would have global implications for health care and would affect Congress’s ability to regulate medical costs not just for drugs but also for a host of other healthcare-related policies. 

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