The Impact of the Inflation Reduction Act on Prescription Drug Costs and Pharmaceutical Innovation: Analysis of Seven Selected Drugs

Faculty Mentor

Janna Roitman

Major/Area of Research

Pharmaceutical Industry

Description

INTRODUCTION: In 2020, U.S. prescription drug expenditures exceeded $370 billion, with Medicare enrollees facing rising out-of-pocket costs. The Inflation Reduction Act (IRA), passed in 2022, granted the Centers for Medicare & Medicaid Services (CMS) the authority to negotiate drug prices to reduce costs for Medicare beneficiaries. This research evaluates how IRA-mandated price negotiations may impact prescription drug prices and pharmaceutical innovation. METHOD: Data was sourced from the Bureau of Labor Statistics (BLS), CMS, Statista, Macrotrends, and financial reports from pharmaceutical manufacturers. Seven of the ten drugs selected for IRA negotiations were analyzed: Januvia, Fiasp/Novolog, Farxiga, Enbrel, Stelara, Xarelto, and Eliquis. Correlation analysis examined domestic R&D expenditure and revenue trends from 1985 to 2023, while regression analysis assessed the relationship between the U.S. prescription drug Consumer Price Index (CPI) and domestic sales revenue. RESULTS: In 2023, the seven analyzed drugs accounted for $41.6 billion in Medicare Part D spending, generating $13.6 billion in revenue for manufacturers. IRA price negotiations are projected to save CMS $20.5 billion annually by 2026, but manufacturer revenue is expected to decline to $6.5 billion, representing a $7.1 billion loss. Correlation analysis (r = 0.9896) indicated strong ties between revenue and R&D investment, while regression analysis (R² = 0.9277) showed a strong link between CPI trends and revenue. Manufacturers historically reinvested 20% of revenue into R&D, meaning projected losses could reduce R&D spending by $1.43 billion in 2026 alone. CONCLUSION: While IRA negotiations will significantly reduce Medicare costs, the projected revenue decline could reduce R&D investment, potentially slowing pharmaceutical innovation. Further studies are needed to assess the long-term impact of these price controls on drug development and patient access.

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The Impact of the Inflation Reduction Act on Prescription Drug Costs and Pharmaceutical Innovation: Analysis of Seven Selected Drugs

INTRODUCTION: In 2020, U.S. prescription drug expenditures exceeded $370 billion, with Medicare enrollees facing rising out-of-pocket costs. The Inflation Reduction Act (IRA), passed in 2022, granted the Centers for Medicare & Medicaid Services (CMS) the authority to negotiate drug prices to reduce costs for Medicare beneficiaries. This research evaluates how IRA-mandated price negotiations may impact prescription drug prices and pharmaceutical innovation. METHOD: Data was sourced from the Bureau of Labor Statistics (BLS), CMS, Statista, Macrotrends, and financial reports from pharmaceutical manufacturers. Seven of the ten drugs selected for IRA negotiations were analyzed: Januvia, Fiasp/Novolog, Farxiga, Enbrel, Stelara, Xarelto, and Eliquis. Correlation analysis examined domestic R&D expenditure and revenue trends from 1985 to 2023, while regression analysis assessed the relationship between the U.S. prescription drug Consumer Price Index (CPI) and domestic sales revenue. RESULTS: In 2023, the seven analyzed drugs accounted for $41.6 billion in Medicare Part D spending, generating $13.6 billion in revenue for manufacturers. IRA price negotiations are projected to save CMS $20.5 billion annually by 2026, but manufacturer revenue is expected to decline to $6.5 billion, representing a $7.1 billion loss. Correlation analysis (r = 0.9896) indicated strong ties between revenue and R&D investment, while regression analysis (R² = 0.9277) showed a strong link between CPI trends and revenue. Manufacturers historically reinvested 20% of revenue into R&D, meaning projected losses could reduce R&D spending by $1.43 billion in 2026 alone. CONCLUSION: While IRA negotiations will significantly reduce Medicare costs, the projected revenue decline could reduce R&D investment, potentially slowing pharmaceutical innovation. Further studies are needed to assess the long-term impact of these price controls on drug development and patient access.