The Impact of Inflation Reduction Act on Medicare Program

Changes to Medicare Program

The Inflation Reduction Act brings about significant changes to the Medicare program. The law mandates the federal government to set prices for certain medicines. Initially, ten medicines are selected for price setting in 2026, with a plan to expand to twenty by 2029. This price intervention for drugs under the Inflation Reduction Act introduces a unique selection criterion not observed in other price-setting systems globally.

Differentiation between Small and Large Molecules

The Inflation Reduction Act distinguishes between small molecule medicines, typically pills, and large molecule medicines, typically injections. Small molecules are synthesized chemically and can easily penetrate cell walls, making them effective in targeting specific organs or cells. On the other hand, large molecules are derived from living organisms and can elicit immune responses within the body. Both types of medicines play a crucial role in healthcare and should be assessed based on their potential to enhance patient health.

Impact on Revenue and Clinical Development

Under the Inflation Reduction Act, the selection of drugs for price setting focuses on high-revenue medications. Small molecules are subjected to price setting seven years after FDA approval, while large molecules face price intervention after eleven years. This setup results in a deeper impact on revenue for small-molecule medicines compared to large molecules. The law inadvertently affects the profitability and investment incentives for small molecule medicines, particularly in clinical development programs.

Forecasted Effects

In a recent study, researchers simulate the expected consequences of federal price setting under the Inflation Reduction Act. The study projects that a majority of selected medicines will be small molecules, with cancer treatments being the most common therapeutic area affected. If pricing is set at the upper limit allowed by the law, future revenues for small molecule medicines could decrease by 28%, leading to reduced investments in post-market trials.

Impact on Clinical Development

Contrary to some beliefs, price setting has a significant impact on clinical development. Research demonstrates a direct correlation between investment in drug development and the expected financial returns. The Inflation Reduction Act‘s price-setting mechanism may divert investments away from drugs for common conditions in seniors, particularly small molecule medications. This distortion in financial incentives poses a risk to the future of healthcare advancements, especially in cancer treatment.

Read More of this Story at www.aei.org – 2024-06-06 20:06:48

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