Overview: Price Regulation For Drug Prices

Topic: Inflation Reduction Act

The Prescription Drug Provision in the Inflation Reduction Act (IRA) is a policy that President Joe Biden, the 40th United States President, signed into law in August 2022. The provisions of the act are reduced prescription drug costs for individuals covered by Medicare and spending by the federal government on drugs. Despite its useful provisions, the act has various issues, such as the fact that the policy must address the real issues relating to drug affordability in pharmacies. Consequently, it might reduce new treatments by shifting the focus away from small-molecule drug research. The analysis of The Prescription Drug Provision in the IRA demonstrates that it poses a risk to new drug research and their affordability due to its lack of clarity on determining some of its provisions. This issue can be effectively solved by focusing drug pricing on value and promoting transparency in drug pricing negotiations.

The Problem:

The IRA does not clearly define the determination of maximum fair prices for selected drugs, resulting in lowered investment in research and development (R&D) and, over time, limited drug discoveries. Negotiations on drug prices, inflation rebates, and expected manufacturer discounts work together to limit revenue to drug manufacturers by 31% and, consequently, 135 fewer new drug approvals through 2039 (Goldman et al., 2023). The provisions in the Act include drug-price negotiations in which the federal government must collaborate with drug manufacturers for Medicare Part B and Part D drugs for maximum fair prices (Kaltenboeck, 2023). However, there is a lack of transparency over this drug calculation, and the process focuses on price minimization, creating a risk of research diverting from critical treatments. Lowered pharmaceutical revenues result in lowered investment in research and development (R&D) and, over time, limited drug discoveries.

The failure to address the issue may result in increased drug pricing in the long run. In this case, the most affected population will be older adults, who comprise the majority of U.S. healthcare and pharmaceutical drug utilization. A status quo alternative for the problem would be to increase transparency in the negotiation process, as this will establish accountability around high drug price increases and high launch prices among manufacturers (Rodwin, 2019). Drug pricing focusing on social value can be attained through applying the Generalized Risk-Adjusted Cost-Effectiveness (GRACE) methodologies and collaborations with stakeholders in the industry while incorporating transparency (Goldman et al., 2023). The methodologies can be used to relate health gains with quality of life in which high value goes together with inferior quality of life and vice-versa.

The IRA policy provides provisions for lowering the cost of healthcare for U.S. citizens but has some negative elements that could limit new drug innovation in the country. One such issue is the need for more transparency in price negotiations and a focus on price slashing that is bound to lower pharmaceutical revenue and consequently limit new drug discovery. The federal government should base pricing on value by applying GRACE to increase pharmaceutical innovations while keeping drugs affordable to Americans.

Assemble evidence:

In 2022, overall pharmacy expenditures grew 9.4% in the U.S. compared to 2021, totalling $633.5 billion. This growth was primarily due to increased utilization by consumers (5.9% increase), price (1.7% increase), and new drugs coming to the market (1.8% increase). Tichy et al. (2023) Advancements in technology and the resulting advancements in healthcare are leading to the development of more complex treatments, resulting in the ever increasing prices in all aspects of healthcare, including prescription medications. Factors influencing drug prices include increased prices on brand medications, a lack of major patent expirations, increased prices of generic medications, and the expense of specialty medications. K et al. (2017) Previous policies that have targeted drug prescription prices: The Drug Price Competition and Patent Term Restoration Act of 1984 (aka Hatch-Waxman Amendments) - expedited the generic drug approval process after brand patent expiration. 340B Drug Pricing Program - allows certain hospitals discounted outpatient drug prices from manufacturers Biologics Price Competition and Innovation Act - Allows for fast-tracking approvals of biosimilar drugs to combat the price of biologic medications At the consumer/patient level, increased drug prices lead to medication non-adherence, which in turn, results in more spending due to health complications. A model done by Xcenda evaluated the potential impact of cost-related nonadherence over a 10 year period (from 2021-2031) and found that high out-of-pocket costs will be estimated to cause 1.1 million premature deaths of seniors in the Medicare program and to an additional $177.4 billion in avoidable Medicare spending. Currently, Medicare members can pay as much as 25% of drug cost (after Medicare coverage and manufacturer rebates). As prescription costs continue to rise beyond inflation, it is becoming increasingly more difficult for seniors to afford life-saving medications in retirement. Models estimate that giving Medicare the authority to further negotiate drug prices with manufacturers, could greatly impact health outcomes and estimate that it could prevent approximately 93,900 premature deaths per year as well as unnecessary Medicare spending by $475.9 billion by 2030. (| CIDSA, n.d.)

In a two/three paper page, according to steps on the Eightfold Path, construct alternatives for this problem and discuss the policy's advantages and disadvantages. Dont forget to cite!!