Publications
Publications
- March 2024
- Nature Biotechnology
Medicare Price Negotiation and Pharmaceutical Innovation Following the Inflation Reduction Act
By: Matthew Vogel, Pragya Kakani, Amitabh Chandra and Rena M. Conti
Abstract
The Inflation Reduction Act (IRA) requires Medicare to negotiate lower prices for some medicines with high Medicare spending. Using historical data from public and proprietary sources to apply the IRA's negotiation criteria retrospectively, we identify all drugs that met the eligibility criteria from 2012 to 2021 to classify drugs that would have had a negotiated price in effect in 2022 and to calculate associated decreases in industry revenues. Our results suggest that the IRA's reduction in overall industry revenue will be modest, will not affect most top-selling drugs and will not likely result in large-scale defunding of research and development. Changes in the net present value of drug-development projects will be concentrated in medicines where Medicare is a notable purchaser and where the ratio between expected revenue and development costs was only marginally positive before the IRA. Policymakers considering narrowing or expanding the scope of Medicare negotiation should carefully consider the tradeoffs across medicines with diverse characteristics.
Keywords
Policy; Government Legislation; Health Care and Treatment; Negotiation; Price; Pharmaceutical Industry
Citation
Vogel, Matthew, Pragya Kakani, Amitabh Chandra, and Rena M. Conti. "Medicare Price Negotiation and Pharmaceutical Innovation Following the Inflation Reduction Act." Nature Biotechnology 42, no. 3 (March 2024): 406–412.