Happy Birthday Two You, IRA: Drug Pricing Dynamics to Watch as Maximum Fair Price Announcements Loom

• This week marks the second anniversary of the enactment of the Inflation Reduction Act, a partisan law that ushered in sweeping Medicare price setting reforms.
• The Biden-Harris Administration is poised to announce the first round of final “negotiated” drug prices, a defining milestone in IRA implementation.
• As IRA implementation moves forward, Constitutional challenges to the law continue to be litigated in the courts.
• Two years after passage, Congress continues to actively engage on a wide range of drug pricing policy issues, including IRA-related legislation and oversight activity.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law (P.L. 117-169). As outlined in our prior analysis marking the first anniversary of this law, the Inflation Reduction Act (IRA) ushered in sweeping drug pricing reforms for the Medicare program, including a Medicare Drug Negotiation Program, under which for the first time the federal government is setting the prices of certain prescription drugs. The law also established new Medicare Part B and Part D inflation rebates and redesigned the Part D benefit structure, among other provisions. Implementation of IRA’s drug pricing provisions are being closely watched by stakeholders and continues to be the subject of ongoing Congressional oversight, federal legislative activity and litigation. This policy alert outlines various evolving drug pricing dynamics as IRA turns two.

The Biden-Harris Administration is Poised to Announce the “Negotiated” Drug Prices

Last August, the Biden-Harris administration announced the first drugs selected for the Medicare Drug Negotiation Program¹ which kicked off the process for setting the prices for these drugs, the “maximum fair price” (MFP) under the IRA’s statutory scheme. The negotiation process has played out over the past year and stakeholders are eagerly waiting to see the final MFPs that are announced and what additional context is provided regarding how these prices were determined. The IRA statute lays out that the Centers for Medicare & Medicaid Services (CMS) is to publish the MFP for drugs selected for negotiation for 2026 on September 1, 2024. Absent any change to the IRA’s current implementation trajectory, the MFPs set by CMS would go into effect on January 1, 2026, meaning, the MFP must be available to all Medicare beneficiaries as of that date. MFPs do not apply to privately insured or uninsured patients.

The Biden-Harris administration has touted IRA’s drug pricing provisions as a signature policy initiative for the administration, and the Biden-Harris administration may look to announce the prices set for the selected drugs for 2026 as soon as this week as they mark the law’s two-year anniversary. Congress passed IRA through a partisan, budgetary legislative procedure by which only Democratic members of Congress voted in support of the law. Since IRA’s enactment, the Biden-Harris administration has repeatedly called to double down on IRA as part of its drug pricing agenda. Thus, given the politics of IRA, announcing the MFPs this week would set the stage for Vice President Harris, and her running mate, Governor Tim Walz (D-MN), to highlight this unprecedented drug pricing milestone at the upcoming Democratic convention.

Constitutional and Legal Challenges are Ongoing

Nine separate lawsuits are pending against CMS brought by various pharmaceutical manufacturers, the Ohio Chamber of Commerce and PhRMA in different jurisdictions across the country. A variety of Constitutional challenges have been lodged, including claims under the Takings Clause and the Due Process Clause of the 5^thAmendment, the Excessive Penalties Clause of the 8^thAmendment, Non-Delegation claims under a separation of powers theory, and First Amendment Free Speech claims. Some of the cases also include non-constitutional legal claims under the Administrative Procedures Act, challenging, for example, the way that CMS has implemented the selection of particular drugs in this first round of the IRA. Thus far, all of these legal challenges have failed at the district court level and multiple appeals have been filed with the federal circuit courts. The appeals are at various stages of filings. CMS’s opposition briefs in several cases pending in the Third Circuit are due in September. Also of note, the Fifth Circuit heard oral argument in early May on the National Infusion Center Association (NICA) and PhRMA’s appeal of the dismissal of its suit filed in Texas district court on jurisdictional grounds. A win on appeal for PhRMA and NICA would allow the case to proceed in the district court on substantive grounds.

If any of the IRA appeals are successful, will the courts halt the implementation of the program? In the case brought by the Dayton Chamber of Commerce in the District of Ohio, the court dismissed the application for injunctive relief in September 2023, stating “The Court is not convinced that granting Plaintiffs preliminary injunctive relief will protect them from imminent and irreparable harm…Any economic harm — which, on its own, is insufficient to satisfy this prong of a preliminary injunction analysis — will not occur for years in the future.” Now that we are closer to the implementation of drug price controls with the expected announcement of MFPs, it remains to be seen whether any court will be willing to enjoin the program in whole or in part.

Oversight, Hearings and Legislation: Congress Continues to Engage on Drug Pricing and IRA

Congress is one of the many stakeholders closely watching how the Biden-Harris administration is implementing IRA’s drug pricing provisions. IRA implementation has been an area of Congressional oversight activity. The most recent example of this dynamic played out over the past few weeks. On July 29, 2024, CMS released Part D bid information, including the base premium and national average monthly bid amounts for 2025. The agency also announced a voluntary Part D premium stabilization demonstration, acknowledging that the IRA made the most significant changes to the Part D benefit since the Part D program was established and there is greater-than-anticipated variation in (prescription drug plan) PDP premiums, particularly for the stand-along PDPs. In response to this announcement, on August 5, Senate Finance Committee Ranking Member Mike Crapo (R-ID), House Ways and Means Committee Chair Jason Smith (R-MO) and House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-WA) sent a letter to the Government Accountability Office requesting an expedited review of the Part D Premium Stabilization Demo announced by CMS, including questions related to the legal authority to carry out such a demonstration and how it compares to previous demonstrations by the agency.

IRA implementation has not been the only area of drug pricing oversight by Congress. On the heels of the release of the FTC’s interim staff report on PBMs, last month the House Committee on Oversight and Accountability held its third hearing on pharmacy benefit managers (PBMs) (“The Role of Pharmacy Benefit Managers in Prescription Drug Markets Part III: Transparency and Accountability”) further demonstrating the bipartisan oversight focus on PBMs as part of Congress’ work on drug pricing. There has been a notable, bipartisan Congressional focus on potential PBM reforms throughout the 118^thCongress, and this focus may yet further ripen into legislative momentum headed into a Lame Duck Congress after the November elections.

The range of legislation introduced in the 118^thCongress underscores both the continued partisan dynamics with IRA as well as the potential path for future bipartisan changes to the law. On the one end of the IRA legislative spectrum, Republican members have introduced legislation to repeal IRA’s drug pricing provisions altogether. Sens. Mike Lee (R-UT) and Marco Rubio (R-FL) introduced the Protect Drug Innovation Act (S. 2157) which would repeal IRA’s Drug Price Negotiation Program, the Part B and Part D inflation rebates and the Part D redesign. On the other end of the legislative spectrum, Democratic members have introduced legislation to expand IRA.

• Reps. Frank Pallone (D-NJ), Richie Neal (D-MA) and Bobby Scott (D-VA) introduced the Lowering Drug Costs for American Families Act (H.R. 4895) which would apply the prices set under the Medicare Drug Price Negotiation Program and Part B and Part D inflation rebates to the commercial market and increase the annual number of prescription drugs selected for the Medicare Price Negotiation Program.
• Sen. Amy Klobuchar (D-MN) sponsored the SMART Prices Act (S. 1264) which would increase the number of drugs selected for price negotiation and also shorten the required period of market approval before a drug is potentially eligible for price setting to three years for both drugs and biologics, among other provisions.
• Sen. Catherine Cortez Mastro (D-NV) and Rep. Ruben Gallego (D-AZ) have also introduced the Lower Drug Costs for Families Act in the House (H.R. 4115) and Senate (S. 1139) which would apply the Part B and Part D inflation rebates to drugs in the commercial market.

Yet, despite the continued partisan dynamics surrounding IRA, certain targeted bipartisan bills related to the IRA’s drug pricing provisions have started to emerge in the 118^thCongress.

• Reps. Greg Murphy (R-NC), Don Davis (D-NC and Brett Guthrie (R-KY) introduced the Ensuring Pathways to Innovative Cures (EPIC) Act (H.R. 7174) which would revise the Medicare Drug Price Negotiation Program to equalize the negotiation period following FDA approval for small-molecule drugs and biologics. Under H.R. 7174, small molecule candidates would be eligible for negotiation 11 years after FDA approval, rather than 7, and negotiated prices for selected small-molecule drugs would take effect at 13 years, rather than 9.
• The ORPHAN Cures Act (S. 3131, H.R. 5539) is sponsored by Sens. John Barrasso (R-WY) and Tom Carper (D-DE) in the Senate, and Rep. Wiley Nickel (D-NC) in the House. Under current law, orphan drugs indicated for a single condition are exempt from the Medicare Price Negotiation Program. The ORPHAN Cures Act would ensure that the orphan drug exclusion under the Drug Price Negotiation Program applies also to orphan drugs that treat more than one rare disease.

Legislation aimed at increasing the transparency around IRA implementation has also been introduced this Congress. Sen. Thom Tillis (R-NC) introduced the Safeguarding Patients and Taxpayers Act (S. 1589), which would require HHS to report annually to Congress on amounts expended, the use of funds and other implementation activities related to the Medicare Drug Negotiation Program.

The range of legislation related to IRA’s drug pricing provisions further underscores how this law – and drug pricing – continues to be a key area of focus for Congress. The introduction of bipartisan IRA reforms signals an openness to making changes to the law to address policy areas of concerns similar to what played out in the years following the enactment of the Patient Protection and Affordable Care Act (P.L. 111-148).

What’s Next

As IRA turns two, the Biden-Harris administration continues to be full speed ahead on implementing the law’s drug pricing provisions. The next big milestone in the law’s implementation will be the impending announcement of the prices for the drug selected to be negotiated for the 2026 plan year. This announcement is expected to occur in the coming days ahead of the September 1, 2024, statutory deadline. There is some uncertainty about the longer-term future for IRA as the law turns two and faces ongoing litigation, continued Congressional activity and the politics of a presidential election year. Two years after enactment, partisan dynamics around the law’s drug pricing provisions persist; however, bipartisan legislation to “fix” parts of the law are starting to emerge and reminding stakeholders that what IRA is today may not be what it is in the years to come. In the interim, stakeholders will continue to closely watch IRA and the drug pricing dynamics unfold in the days and months ahead.

^{1 The drugs selected include: Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill}