How the IRA's Price Controls Could Backfire on Patients
For millions of Americans, health insurance offers a false promise. Despite paying premiums, deductibles, and copays, many still find themselves struggling to afford essential healthcare. In fact, a recent survey found that a staggering 43% of adults with employer-sponsored insurance—often considered the gold standard of coverage—find healthcare difficult to afford. This affordability crisis is poised to worsen, as the latest National Health Expenditure projections from the Centers for Medicare & Medicaid Services (CMS) reveal a troubling trend: while government spending on prescription drugs is projected to decrease, patient out-of-pocket costs are expected to rise. The projections forecast an 8.9% increase in hospital expenditures, coupled with a 1.4% decrease in retail prescription drug spending. This shift, driven in part by the Inflation Reduction Act's (IRA) price control provisions, threatens to undermine the law's intended goal of affordable healthcare and exacerbate existing health inequities. While the IRA aims to lower drug costs, its focus on price controls, rather than comprehensive patient protection mechanisms, is creating misaligned incentives that could backfire on the very people it aims to help.
The IRA's Price Controls: A Double-Edged Sword
The IRA's approach to lowering drug costs centers on empowering the government to directly negotiate prices with pharmaceutical companies. This change tackles a provision in the Medicare Part D program known as the "non-interference" clause, which previously prevented the government from directly negotiating drug prices. As a Kaiser Family Foundation (KFF) issue brief explains, "The Part D non-interference clause has been a longstanding target for some policymakers because it has limited the ability of the federal government to leverage lower prices, particularly for high-priced drugs without competitors." While this "non-interference" clause has long been a target for reform, the IRA's implementation creates a ripple effect that extends beyond simply lowering the sticker price of medications. The Congressional Budget Office (CBO) estimates that these drug pricing provisions will reduce the federal deficit by $237 billion over 10 years, suggesting a significant shift in spending away from the government. However, this shift comes at a cost. The IRA's emphasis on price controls, rather than comprehensive patient protection mechanisms, disrupts existing rebate structures that have been crucial in expanding access to medications, particularly for low-income patients and those with chronic conditions.
Programs like 340B and Medicaid rely on a system of manufacturer rebates to make medications more affordable. In essence, drug companies provide rebates to these programs in exchange for having their drugs included on formularies and made available to a large pool of patients. These rebates help offset the cost of medications, allowing safety-net providers to stretch their limited resources and serve more patients. However, the IRA's price controls could disrupt this delicate balance. By directly negotiating lower prices with manufacturers, the government might inadvertently reduce the incentive for companies to offer substantial rebates to programs like 340B and Medicaid. This could lead to higher costs for these programs and ultimately limit access to medications for vulnerable populations.
This means that programs like 340B and Medicaid, which rely on manufacturer rebates to offset costs and provide affordable medications to vulnerable populations, could be significantly undermined by the IRA's price control measures.
Further complicating the issue is the potential for pharmaceutical companies to adapt to the IRA's price controls by strategically setting higher launch prices for new drugs. This tactic allows them to recoup potential losses from negotiated prices in the future, effectively shifting the cost burden onto other payers, including patients. The CBO projects that this trend of higher launch prices would disproportionately impact Medicaid spending, placing a greater strain on a program already facing significant enrollment fluctuations and budgetary pressures. The KFF brief warns that, "Drug manufacturers may respond to the inflation rebates by increasing launch prices for drugs that come to market in the future." This means that while the IRA might appear to lower drug costs in the short term, it could inadvertently fuel a long-term trend of rising prices for new medications, ultimately impacting patient affordability and access to innovative therapies.
Hospitals: Benefiting from the System While Patients Pay the Price
The CMS projections forecast an alarming 8.9% increase in hospital expenditures, raising questions about the drivers of this unsustainable growth. A closer look reveals a troubling connection between this trend and the 340B Drug Pricing Program, a federal initiative designed to help safety-net hospitals provide affordable medications to low-income patients. The CBO's analysis of 340B spending reveals an explosive 19% average annual growth from 2010 to 2021, significantly outpacing overall healthcare spending growth. This dramatic increase is largely attributed to hospitals, particularly those specializing in oncology, which are increasingly purchasing high-priced specialty drugs through the program. As the CBO presentation states, "340B facilities benefit from the program because the difference between the acquisition cost and the amount they are paid (often called the 'spread') is larger for drugs acquired through the 340B program." This suggests that hospitals are capitalizing on the 340B program's discounts to acquire expensive medications, potentially driving up their overall spending. But are these savings being passed on to patients? Evidence suggests otherwise.
This suspicion of hospitals leveraging the 340B program for profit is further reinforced by a UC Berkeley School of Public Health study which found that hospitals are charging insurers exorbitant markups for infused specialty drugs, many of which are likely acquired through 340B. The study reveals that hospitals eligible for 340B discounts charge insurers a staggering 300% more for these drugs than their acquisition costs, effectively pocketing a substantial profit margin. This practice raises serious concerns about whether the 340B program, designed to help vulnerable patients access affordable medications, is instead being exploited by hospitals to boost their bottom line. As Christopher Whaley, a co-author of the UC Berkeley study, aptly points out, "It is ironic that some hospitals earn more from administering drugs than do drug firms for developing and manufacturing those drugs. At least drug firms invest part of their revenues in innovation; hospitals invest nothing." This highlights a perverse incentive structure where hospitals benefit financially from a program intended to help patients, while those same patients are often left facing inflated prices for essential medications and crippling medical debt.
The Affordability Crisis: A Broken Promise for Patients
This concerning trend of rising healthcare costs and shifting burdens is not limited to those reliant on safety-net programs. The Commonwealth Fund's 2023 Health Care Affordability Survey paints a bleak picture of the widespread affordability crisis facing Americans across all insurance types. The survey found that 43% of adults with employer coverage find healthcare difficult to afford, shattering the illusion that employer-sponsored insurance guarantees financial protection. These findings challenge the fundamental assumption that health insurance in the United States equates to affordable access to care. As the survey report states, "While having health insurance is always better than not having it, the survey findings challenge the implicit assumption that health insurance in the United States buys affordable access to care." This sentiment is echoed by millions of Americans who, despite having insurance, are forced to make difficult choices between their health and their financial well-being.
Even the IRA's lauded out-of-pocket (OOP) cap on Part D drug costs, while offering some relief, fails to address the root causes of this affordability crisis. An analysis by Avalere reveals that even with the cap in place, a significant number of Medicare beneficiaries will continue to face high healthcare costs, particularly those with lower incomes or specific health conditions. The analysis projects that 182,000 beneficiaries will spend over 10% of their income on Part D drug costs in 2025, despite the OOP cap. This sobering statistic underscores the limitations of focusing solely on OOP costs without addressing the underlying drivers of high drug prices and healthcare spending. As the Avalere analysis cautions, "High OOP costs are expected to result in many enrollees still facing affordability challenges in 2025." The findings from both the Avalere analysis and the Commonwealth Fund survey highlight a critical gap in the IRA's approach: it fails to adequately protect the most vulnerable patients from the financial burden of healthcare.
A Call for Patient-Centered Solutions
The CMS projections, alongside independent analyses of the pharmaceutical market and patient affordability, paint a clear picture: the current trajectory of US healthcare spending is unsustainable and inequitable. The IRA's price control provisions, while well-intentioned, risk exacerbating the affordability crisis by disrupting existing rebate structures, incentivizing higher launch prices for new drugs, and shifting costs onto patients. This shift is further compounded by unchecked hospital spending, particularly on high-priced specialty medications acquired through the 340B program. The result is a system where hospitals and pharmaceutical companies benefit, while patients—especially those with lower incomes or chronic conditions—are left struggling to afford essential care.
To be sure, the IRA includes provisions aimed at directly helping patients, such as the out-of-pocket cap on Part D drug costs and the expansion of subsidies for marketplace plans. These are positive steps towards easing the financial burden of healthcare for many Americans. However, the law's broader focus on price controls, without sufficient attention to patient protection mechanisms and the potential for unintended consequences, threatens to undermine these gains and create new challenges for those who rely on safety-net programs like 340B and Medicaid.
It's time for a fundamental shift in our approach to healthcare reform. Policymakers must move beyond a narrow focus on price controls and embrace a patient-centered approach that prioritizes affordability, access, and equity. This requires a multi-pronged strategy that includes:
Reassessing the IRA's reliance on price controls: Instead of simply dictating prices, policymakers should explore alternative approaches that strengthen patient protections, preserve rebate structures that support broader access, and address the potential for cost-shifting onto patients.
Tackling hospital pricing practices: Increased transparency and accountability in hospital pricing, particularly for inpatient medications, is necessary to ensure that safety-net programs like 340B are truly benefiting patients and not being exploited for profit.
Investing in alternative care models: Promoting value-based care and investing in primary and preventive care can reduce reliance on expensive hospital stays, improve health outcomes, and make healthcare more affordable for everyone.
The promise of affordable, accessible healthcare for all Americans remains unfulfilled. We must demand a healthcare system that puts patients first, not profits. Only then can we ensure that everyone has the opportunity to live a healthy and fulfilling life, regardless of their income or health status.
2022: New Beginnings, New Changes
The Community Access National Network (CANN) ushers in a new beginning with the 2022 New Year, evidenced not only by the changing of the guard with our new President & CEO, but also with some important programmatic changes with our organization. We felt it important to share these changes with you.
Our weekly blog, previously branded as the HEAL Blog (Hepatitis Education, Advocacy & Leadership), is being repurposed to serve our broader mission “to define, promote, and improve access to healthcare services and supports for people living with HIV/AIDS and/or viral hepatitis through advocacy, education, and networking.” As such it is now the CANN Blog, and its areas of interest will focus on HIV/AIDS, viral hepatitis, substance use disorder, harm reduction, patient assistance programs (PAPs), Medicare, Medicaid, and the ongoing Covid-19 pandemic and its impact on public health. In keeping with the desire to monitor broader public health-related issues and appropriately engage stakeholders, our CANN Blog will be disseminated to a larger audience. Therefore, some of you may notice one more email in your inbox each Monday morning since we’re employing our general listserv to share the blog posts. It is our hope that you’ll deem the added email of value and thus maintain yourself on our listserv.
Additionally, our acclaimed HIV/HCV Co-Infection Watch will also be shared with our general listserv. But don’t worry, it only means one additional email each quarter! The HIV/HCV Co-Infection Watch offers a patient-centric informational portal serving three primary groups - patients, healthcare providers, and AIDS Service Organizations. The quarterly Watches are published in January, April, July, and October.
In 2022, our Groups will also be more active. Since 1996, our National ADAP Working Group (NAWG) has served as the cornerstone of CANN’s advocacy work on public policy. Whereas NAWG will continue to engage our HIV/AIDS stakeholders with monthly news updates, we will also convene periodic stakeholder meetings to discuss important issues facing the HIV community. Likewise, our Hepatitis Education, Advocacy & Leadership (HEAL) Group has served as an interactive national platform for the last decade on relevant issues facing people living with viral hepatitis. Periodic stakeholder meetings to discuss important issues facing the Hepatitis community will now complement the HEAL monthly newsletter. If you would like to join either the NAWG or HEAL listserv, then please do so using this link.
CANN will also launch its 340B Action Center this year. It is designed to provide patients with content-drive educational resources about the 340B Drug Discount Program and why the program matters to you. The importance of the 340B Program cannot be under-stated, and CANN remains committed to taking a balanced “money follows the patient” approach on the issues facing the program and advocating for needed reforms.
Finally, like most advocacy organizations, CANN is constantly evaluating whether it is safe (or not) to host in-person stakeholder meetings. Covid-19 has changed the advocacy landscape. Over the last two years our two signature meetings (Community Roundtable and Annual National Monitoring Report on HIV/HCV Co-Infection) have been hosted virtually, rather than in-person. CANN is taking a “wait and see” approach on how best to proceed in 2022 with these events. We will keep you apprised of our decision.
As we close the door on 2021 and open it for 2022, CANN looks forward to working with all of its community partners, industry partners, and you!
Biden Administration’s Healthcare Future is One of Promise & Peril
Last month, the Biden Administration issued a press release outlining a look toward the future of American health care policy. Priorities in the presser include ever elusive efforts around prescription drug pricing and items with steep price tags like expanding Medicare coverage to include dental, hearing, and vision benefits, a federal Medicaid look-alike program to fill the coverage gaps in non-expansion states, and extending Affordable Care Act (ACA) subsidies enhancements instituted under the American Rescue Plan (ARP) in March. Many of these efforts are tied to the upcoming $3.5 trillion reconciliation package.
President Biden renewed his call in support of the Democrats effort to negotiate Medicare prescription drug costs, enshrined in H.R. 3. Drug pricing reform has been an exceptional challenge despite relatively popular support among the voting public, in particular among seniors. The pharmseutical industry has long touted drug prices set by manufacturers do not represent the largest barriers to care and mandating lower drug costs would harm innovation and development of new products. Indeed, for most Americans, some form of insurance payer, public or private, is the arbiter of end-user costs by way of cost-sharing (co-pays and co-insurance payments). To even get to that point, consumers need to be able to afford monthly premiums which can range from no-cost to the enrollee to hundreds of dollars for those without access to Medicaid or federal subsidies. The argument from the drug-making industry giants is for Congress to focus efforts that more directly impact consumers’ own costs, not health care industry’s costs. Pharmaceutical manufacturers further argue mandated price negotiation proposals would harm the industry’s ability to invest the development of new products. To this end, the Congressional Budget Office (CBO) recently released a report giving some credence to this claim. The CBO’s report found immediate drug development would hardly be impacted as those medications currently “in the pipeline” would largely be safe, but a near 10% reduction in new drugs over the next 30 years. While new drug development has largely been focused on “personalized” medicine – or more specific treatments for things like cancer – implementing mRNA technology into vaccines is indeed a matter of innovation (having moved from theoretical to shots-in-arms less than a year ago). With a pandemic still bearing down on the globe, linking the need between development and combating future public health threats should be anticipated.
The administration’s effort to leverage Medicare isn’t limited to drug pricing. Another tectonic plate-sized move would seek to expand “basic” Medicare to include dental, hearing, and vision coverage. Congressional Democrats, while generally open to the idea, are already struggling with timing of such an expansion, angering Senator Bernie Sanders (I-VT) by suggesting a delay until 2028. While any patient with any ailments related to their oral health, hearing, and vision will readily tell you these are critical and necessary coverages, even some of the most common of needs, the private health care insurance industry generally requires adult consumers to get these benefits as add-ons and the annual benefit cap is dangerously low (with dental coverage rarely offering more than $500 in benefit and vision coverage capping at one set of frames, both with networks so narrow as to be near meaningless for patients with transportation challenges). While the ACA expanded a mandatory coverage for children to include dental and vision benefits in-line with private adult coverage caps, the legislation did nothing to mandate similar coverages for adults and did not require private payers to make access to these types of care more meaningful (expanded networks and larger program benefits to more accurately match costs of respective care).
The other two massive proposals the Biden Administration is seeking support for, more directly impact American health care consumers than any other effort from the administration: maintaining expanded marketplace subsidies and a federal look-a-like for people living in the 12 states that have not yet expanded Medicaid under the ACA’s Medicaid expansion provisions. The administration has decent data to back this idea, as the Centers for Disease Control and Prevention released a report showing a drop in the uninsured rate from 2019 to 2020 by 1.9 million people, largely attributed by pandemic-oriented programs requiring states to maintain their Medicaid rolls. The administration and Congressional Democrats are expected to argue subsequently passed legislation allowing for expanded subsidies and maintained Medicaid rolls improved access to and affordability of care for vulnerable Americans during the pandemic. As the nation rides through another surge of illness, hospitalizations, and death from the same pandemic “now isn’t the time to stop”, or some argument along those lines, will likely be the rhetoric driving these initiatives.
Speaking of the pandemic, President Biden outlined his administration’s next steps in combating COVID-19 on Thursday, September 9th. The six-pronged approach, entitled “Path out of the Pandemic”, includes leveraging funding to support mitigation measures in schools (including back-filling salaries for those affected by anti-mask mandates and improving urging the Food and Drug Administration [FDA] to authorize vaccines for children under the age of 12), directing the Occupational Safety and Health Administration (OSHA) to issue a rule mandating vaccines or routinized testing for employers with more than 100 employees (affecting about 80 million employees) and mandating federally funded health care provider entities to require vaccination of all staff, pushing for booster shots despite the World Health Organization’s call for a moratorium until greater global equity in access can be attained, supporting small businesses through previously used loan schemes, and an effort to expand qualified health care personnel to distribute COVID-19 related care amid a surge threatening the nation’s hospitals ability to provide even basic care. Notably missing from this proposal are infrastructure supports for schools to improve ventilation, individual financial support (extension of pandemic unemployment programs or another round of direct stimulus payments), longer-term disability systems to support “long-COVID” patients and any yet-unknown post-viral syndromes, and housing support – which is desperately needed as the administration’s eviction moratorium has fallen victim to ideological legal fights, states having been slow to distribute rental assistance funds, and landlords are reportedly refusing rental assistance dollars in favor of eviction. While the plan outlines specific “economic recovery”, a great deal is left to be desired to ensure families and individuals succeed in the ongoing pandemic. Focusing on business success has thus far proven a limited benefit to families and more needs to be done to directly benefit patients and families navigating an uncertain future.
President Biden did not address global vaccine equity in his speech, later saying a plan would come “later”. The problem, of course, is in a viral pandemic, variant development has furthered risks to wealthy countries with robust vaccine access and threatened the economic future of the globe.
To top off all of this policy-making news, Judge Reed O’Connor is taking another swing at dismantling some of the most popular provisions of the ACA. Well, rather, yet another plaintiff has come to the sympathetic judge’s court in an effort to gut the legislation’s preventative care provisions by both “morality” and “process” arguments in Kelley v. Becerra. The suit takes exception to a requirement that insurers must cover particular preventative care as prescribed by three entities within the government (the Health Resources Services Administration – HRSA, the Advisory Committee on Immunization Practices – ACIP, and the Preventative Services Takes Force – PSTF), which require coverage of contraceptives and pre-exposure prophylaxis (PrEP) with no-cost sharing to the patient, among a myriad of other things – including certain vaccine coverage. By now, between O’Connor’s rabid disregard for the rights of lesbian, gay, bisexual, and transgender Americans and obsessive effort to dismantle the ACA at every chance he can – both to his own humiliation after the Supreme Court finally go their hands on his rulings – Reed O’Connor may finally have his moment to claim a victory – I mean – the plaintiffs in Kelley may well succeed due to the Supreme Court’s most recent makeover.
As elected officials are gearing up for their midterm campaigns, how these next few months play out will be pretty critical in setting the frame for public policy “successes” and “failures”. Journalists would do well to tap into the expertise of patient advocates in contextualizing the real-world application of these policies, both during and after budget-making lights the path to our future – for better or worse.