The Inflation Reduction Act (IRA): Impact on Medication Pricing, Spending, Affordability, and Access

The Inflation Reduction Act (IRA), signed into law on August 16, 2022, introduces significant changes to the U.S. healthcare system, affecting medication pricing, healthcare spending, patient affordability, and access to medications. Like any complex federal legislation, the IRA carries both benefits and drawbacks, impacting different stakeholders—including patients, biopharmaceutical companies, and pharmacy benefit managers (PBMs)—in various ways.

Key IRA Provisions Affecting Medicare Part D

  • $2,000 Annual Out-of-Pocket (OOP) Cap for Seniors
    • Most Medicare beneficiaries were already below this threshold, with less than one in 10 (8.6%) paying more than $2000.[1]
    • Seniors who paid less than $2000 OOP could have OOP cost increases if PBMs use the upper limit for all patients.
  • Elimination of OOP Costs for Vaccines Under Medicare Part D
    • Previously, Medicare Part D patients were the only insured group in the U.S. required to pay OOP for vaccines.
    • Since the IRA’s passage, the vaccine OOP cost for seniors has been eliminated.[2]
  • Capping Medicare Part D “Base Beneficiary Premium” Increases at 6% Annually
    • From 2010 to 2022, Medicare Part D premiums were relatively flat.[3]
    • Since the IRA’s enactment, premiums have risen significantly.[3]
    • Capping increases may encourage PBMs to raise premiums to the maximum allowable amount.
  • Medicare Drug Price Negotiations (Maximum Fair Price – MFP)
    • HHS is now authorized to negotiate prices for high-cost brand-name drugs under Medicare.
    • The Congressional Budget Office (CBO) predicts this could reduce new drug development by limiting financial incentives
      for innovation.[4]
  • Inflation Penalty on Drug Price Increases
    • Intended to curb excessive price hikes, this penalty may push manufacturers to launch new drugs at higher initial prices.[5]
  • Shift in Financial Risk to PBMs
    • The IRA could transfer some financial risk from patients and the federal government to PBMs, potentially reducing
      government spending but increasing cost pressures on PBMs.[6]
  • Leveling of OOP Payments
    • The IRA spreads OOP costs evenly over 12 months, making expenses more predictable for patients.[7]
  • Shorter Exclusivity for Small Molecules (9 Years) vs. Large Molecules (13 Years)
    • This policy may shift investment toward large molecules, increasing overall drug spending.[8] [9]
  • Capping Insulin OOP Costs
    • This provision codifies existing voluntary caps set by biopharmaceutical companies into federal law.[10]

Potential Outcomes

  • Increased Financial Exposure for PBMs
    • The Medicare Part D design shift places greater financial risk on PBMs.[11]
  • Reduced PBM Profitability Due to Lower Rebates and Fees
    • MFP pricing is significantly lower than Wholesale Acquisition Cost (WAC).[12]
    • PBMs retain a percentage of rebates and fees but pass an unknown amount of the concessions to plan sponsors.[13]
  • No Immediate Relief at the Pharmacy Counter
    • Despite systemic changes, many patients will continue facing substantial OOP costs.
    • For seniors whose medications are covered by the four largest PBMs, from 2024 to 2025[14]:
      • The OOP average cost increased in total for all of the MFP medicines that were included in the analysis
      • The average OOP cost across all nine MFP drugs increased by $23.91, from $74.51 to $98.42.
      • The average OOP cost for all nine MFP medicines increased by 32%.
      • The OOP costs increased specifically for seven of the nine medicines with a negotiated MFP
      • Cost increases ranged from $10.56 to $316.81.
      • Of the two medicines that did not have OOP increases, one faced new competition from biosimilars that only became available in 2025. All four of the largest PBMs increased OOP costs for six of the seven medicines with cost increases; one medication had OOP increases from only three of these PBMs.

PBM Responses to IRA Changes

PBMs may take several actions in response to revenue losses and financial pressures:

  1. Increase patient cost-sharing by raising copays, increasing co-insurance, or moving medicines to higher-cost tiers.
    Analysis of Medicare patients’ OOP costs from 2024 to 2025 further confirms the analysis by other researchers.[14,15,16]
  2. Request additional concessions from manufacturers.
  3. Increase administrative barriers, such as prior authorization and step therapy, that reduce access to medications.
  4. Raise premiums and OOP costs to the maximum allowable amount.
  5. Demand concessions for medications that previously did not require them, such as vaccines.[17]
  6. Demand additional concessions from manufacturers for drugs not included in the MFP price-setting list.
  7. Exclude certain drugs from formularies, thereby restricting patient access.

While the IRA aims to make medications more affordable and reduce government spending, its broader economic and market effects could create unintended consequences. These include potential reductions in pharmaceutical innovation, shifts in insurance dynamics, and changes in patient access to critical treatments. The ultimate impact will depend on how key stakeholders—biopharmaceutical companies, PBMs, insurers, and healthcare providers—adapt to the evolving regulatory and financial landscape.

REFERENCES

[1] https://www.americanactionforum.org/insight/the-inflation-reduction-act-and-medicare/

[2] https://aspe.hhs.gov/sites/default/files/documents/25c8a374dfc934060bfd88c08b1d5971/part-d-covered-vaccines-no-cost-sharing.pdf

[3] https://www.statista.com/statistics/939663/average-monthly-premium-costs-for-medicare-pdps-us/

[4] https://www.cbo.gov/system/files/2022-01/57450-Drug.pdf

[5] https://www.cbo.gov/system/files/2022-08/58355-Prescription-Drug.pdf

[6] https://www.kff.org/medicare/issue-brief/a-current-snapshot-of-the-medicare-part-d-prescription-drug-benefit/

[7] https://www.xcenda.com/-/media/assets/xcenda/english/content-assets/white-papers-issue-briefs-studies-pdf/medicare-part-d-smoothing-issue-brief_final.pdf

[8] https://www.biospace.com/the-ira-is-already-curtailing-small-molecule-drug-development-here-s-how-to-reverse-that

[9] https://www.cnbc.com/2024/03/10/pfizer-is-betting-big-on-cancer-drugs-after-covid-decline.html

[10] https://investor.lilly.com/news-releases/news-release-details/lilly-cuts-insulin-prices-70-and-caps-patient-insulin-out-pocket#

[11] https://advisory.avalerehealth.com/insights/ira-question-of-the-week-how-will-the-law-impact-plans-and-pbms

[12] Sydor AM, Rivera E, Popovian R. Could the Inflation Reduction Act Maximum Fair Price Hurt Patients? J Health Econ Outcomes Res. 2024;11(2):154-160. doi: 10.36469/001c.125251. PMID: 39629268; PMCID: PMC11612897.

[13] https://www.americanprogress.org/article/5-things-to-know-about-pharmacy-benefit-managers/

[14]data visualization

15 Trish E, Blaylock B, Van Nuys K. Cost Sharing for Preferred Branded Drugs in Medicare Part D. JAMA. Published online February 14, 2025. doi:10.1001/jama.2024.28092. MID: 39951306; PMCID: PMC11829245 .

16 https://www.pharmacychecker.com/askpc/januvia-merck-pbms-formulary-drop/#!

[17] https://ghlf.org/issues/vaccines/challenges-in-adult-vaccination/