Impact of Inflation Reduction Act on Biosimilars

March 15, 2024

Article Summary –

The Inflation Reduction Act (IRA), aimed at lowering the financial burden on people and cutting federal spending on drugs, could significantly impact the market dynamics for biosimilar drugs. The Act introduces several provisions, including direct price negotiations with manufacturers and higher reimbursement for biosimilars in Medicare Part B. Additionally, the reform of the Part D benefit intends to reduce patient out-of-pocket costs and Medicare spending, potentially leading to improved pricing transparency.

The Impact of the Inflation Reduction Act on Biosimilars

Let’s delve into the Inflation Reduction Act (IRA)’s provisions and their influence on biosimilars. Signed into law in August 2022, the IRA includes several prescriptions drug provisions aimed at reducing the financial burden on consumers and cutting federal drug spending. Particularly pertinent to the biosimilars market are provisions addressing high-cost biologic drugs. This article focuses on some of the lesser-discussed provisions and their implications for biosimilars.

Increased Reimbursement for Biosimilars in Medicare Part B

While most Part B drugs are reimbursed at 106% of Average Selling Price (ASP), the IRA raises the reimbursement for biosimilars to 108% of ASP for the 5-year period ending December 2027. However, this increased reimbursement rate only applies to qualifying biosimilars whose ASP is lower than the reference drug ASP in a quarter. This clause could be challenging if brand biologics defend their market share through increased rebates and channel discounts, potentially bringing their ASP close to the biosimilar ASP. If the biosimilar ASP overtakes in a particular quarter, it could lose the reimbursement advantage temporarily.

Potential Shift from High Price, High Rebate Preference

Part D benefit redesign is a key IRA provision aimed at minimizing patient out-of-pocket costs and cutting Medicare spending. This could signal a shift from the high list price/high rebate pricing model, with pricing transparency likely to improve as plan sponsors could face significant liability for drug costs in both initial coverage and catastrophic phases.

Medicare Inflation Penalty to Limit Brand Price Increases

From 2022, the IRA introduced inflation-linked penalty rebates for Medicare, similar to those already in place for Medicaid. If price increases outpace inflation, manufacturers are required to pay the difference as a rebate to Medicare. Given the significant number of patient lives covered under Medicare, inflation penalties in Medicare are likely to deter brands from steep price increases, thereby affecting the value proposition for biosimilar entrants.