On August 16, the Inflation Reduction Act was signed into law. This law gives the federal government the power to negotiate the prices of certain high-cost drugs, among other health care reforms. Read on to learn more about the provisions of the law that will have the greatest impacts on cancer care and what they will mean for oncology stakeholders.

Key Inflation Reduction Act provisions

1. Medicare Part D out-of-pocket spending cap

Medicare Part D beneficiaries will have their out-of-pocket expenses capped at $2,000 starting in 2025. In addition, beginning in 2024, Part D beneficiaries will not be subject to any out-of-pocket costs once they have reached the catastrophic phase of the benefit.

Currently, in the catastrophic phase, the government is responsible for 80% of the bill while Part D plans pay 15% and patients pay 5%. Moving forward, Part D plans will pay 60%, the government will pay 20%, and drug makers will pay 20%.

2. Medicare negotiation of drug prices

For the first time, HHS will be able to negotiate the prices of the top 50 Part D and top 50 Part B drugs with the highest Medicare spending that have been on the market without biosimilar or generic competition for at least seven (Part D) or 11 (Part B) years. Negotiations will occur annually.

HHS will initially select ten Part D drugs to negotiate, with prices going into effect in 2026, then add an additional 15 Part D drugs in 2027, 15 Part B and Part D drugs in 2028, and 20 Part B and Part D drugs in 2029 and future years.

There are some exemptions to negotiation, such as for drugs that are only approved for rare disease indications, drugs sold by small biotech companies, and plasma-derived products.

3. Inflation rebate penalty

Pharmaceutical manufacturers with drug prices that rise faster than inflation will be penalized with rebates beginning in October 2022 for Part D and January 2023 for Part B. Pharmacy drugs that cost under $100 per year and physician-administered drugs with biosimilar or generic competition will be excluded.

Impacts on oncology stakeholders

Cancer patients

Cancer treatment is about to become much more affordable for Medicare patients.

How the Inflation Reduction Act could impact cancer care

The out-of-pocket spending cap will perhaps have the biggest benefit, since half of Part D beneficiaries taking targeted oral anticancer medication enter the catastrophic phase. Cancer patients can also expect to see lower-out-of-pocket costs for negotiated cancer drugs—especially starting in 2028, when expensive provider-administered immunotherapies like Keytruda and Opdivo will be on the table for negotiation. And with the inflation rebate penalty, cancer patients will stop seeing large jumps in out-of-pocket costs from year to year.

With more than half of cancer patients today experiencing bankruptcy or other types of financial toxicity, lower costs will go a long way toward ensuring equitable access to treatment—and may even improve patient outcomes by promoting treatment adherence.

However, it's worth noting that cancer patients may see higher premiums for their Part D plans or encounter stricter utilization management policies as plans prepare to share a higher portion of the cost burden during the catastrophic phase. Patients may also experience higher costs if new cancer therapies are launched with higher list prices.

Providers

The impact to oncology providers is not as clear cut.

Starting in 2028, Medicare negotiation of Part B drug prices will likely lead to lower drug reimbursement for oncology providers since reimbursement is based on drugs' average sales price. Similarly, with the inflation rebate penalty, providers will experience limited growth in Medicare reimbursement for cancer drugs.

However, this may be somewhat tempered by higher infusion volumes if more cancer patients can afford to receive treatment. In addition, providers participating in value-based payment models like the Enhancing Oncology Model may benefit from improvements in medication adherence and patient outcomes due to lower patient costs. But this could be offset by an increase in drug spending per patient from more patients filling prescriptions.

Life sciences companies

Pharmaceutical companies will be hit hardest by the Inflation Reduction Act.

The Inflation Reduction Act is now law. Here's what that means for health care.

Manufacturers of top-selling cancer drugs, such as Merck, Bristol Myers Squibb, and Pfizer, will be at risk for government drug price negotiation. The inflation rebate penalty will further limit revenue growth among a larger group of cancer drug manufacturers, and under the new structure of the Part D benefit, manufacturers of oral cancer therapies will be responsible for a greater portion of drug spending once a patient has reached the catastrophic phase. They may also see Part D plans take a more aggressive approach to rebate negotiations in an attempt to mitigate increasing plan costs.

However, some of these adverse effects may be offset by revenue growth from more cancer patients filling their prescriptions. Right now, nearly half of Part D beneficiaries with high out-of-pocket costs fail to fill their prescriptions for cancer treatment.

In the long term, we may see manufacturers attempt to offset the impact of the Inflation Reduction Act on their finances by launching new cancer drugs at higher prices and using additional scrutiny when considering testing approved drugs for new indications.

When it comes to cancer drug development, they may be less likely to invest in "me-too" drugs or in preclinical or clinical programs where the federal government financially supported the drug's discovery or development, since HHS will take both factors into account during negotiations. Instead, manufacturers may focus on rarer oncology indications or cancers that skew toward younger populations that aren't covered by Medicare. Finally, they may adjust their strategies around patent exclusivity to preclude their cancer drugs from becoming eligible for negotiation.

Commercial health plans

The impact of the Inflation Reduction Act on commercial health plans is the most difficult to predict.

These 4 groups will benefit most from drug pricing reform

Like life sciences companies, the commercial health plans that CMS contracts with to administer Part D benefits will be responsible for covering a significantly higher portion of Part D spending (60% vs. 15%) once cancer patients reach the catastrophic phase. This will drive up drug spending for Part D plans, making it more pressing to implement utilization management strategies and successfully negotiate for larger rebates from manufacturers.

In contrast, commercial health plans will experience lower drug price growth under the inflation rebate penalty, especially when it comes to Part B drug prices. To determine whether a manufacturer owes a rebate on Part B drugs, HHS will assess the drugs' average sales price growth, which includes growth in net prices paid by commercial health plans.

As a result, manufacturers will be discouraged from raising Part B drug prices for commercial health plans. The effect on Part D cancer drug prices is a bit less clear, though commercial health plans are still likely to see slower price growth.

When it comes to price negotiation, on one hand, it's possible that commercial health plans will follow the government's lead in negotiating lower cancer drug prices with manufacturers, which would significantly lower plan spending across all cancer beneficiaries.

On the other hand, manufacturers may want to try to recoup their losses from Medicare drug price negotiations by negotiating higher payment for cancer drugs from commercial health plans. The true impact may lie somewhere in the middle, and it will be interesting to see how this plays out over the next five to ten years.