When President (Joe) Biden signed the Inflation Reduction Act (IRA Act) into law last August, he scored a major victory in the fight to make prescription drugs more affordable for everyone. The IRA limits monthly cost-sharing for insulin products to $35 per month and will limit seniors’ out-of-pocket costs to $2,000 by 2025.
While this has been a big step, the job is not done yet. Because of the way its rules are written, the IRA could inadvertently undermine access to certain treatments, especially in underserved and minority communities. The good news is that with simple adjustments, Congress can ensure that the IRA succeeds in lowering drug costs without exacerbating health care inequity.
The biggest problem is that the IRA penalizes certain types of new drugs by putting them through price negotiations before they have a chance to recoup their investment costs. As the law is written, drugs identified as small molecule drugs, the kind that usually come in pill form, become eligible for negotiations only 9 years after getting approval from the Food and Drug Administration. A different category of drugs, known as biologics, qualifies for negotiations after 13 years.
This discrepancy creates a huge incentive for pharmaceutical companies to favor biologics over small-molecule drugs when allocating funding for research.
It takes about $2.6 billion on average to develop a single successful drug. For small molecule drugs, recovering that initial investment will be much more difficult once they are subject to the reduced 9-year period before price negotiations are required.
For this reason, pharmaceutical companies will shift resources towards biologics, which have a longer period to recoup development costs. In fact it is already happening. According to a recent survey, 63% of pharmaceutical companies intend to make just this turnaround in the next few years.
At first glance, these new rules appear to be a victory for consumers who often need the help of price negotiations to make their drugs affordable. Discouraging small molecule drug research, however, could simply wipe out these desperately needed types of treatments entirely in favor of more expensive treatment options. For poor, rural and other marginalized patients, this could be the difference between life and death.
First, depending on the disease and the treatment route, the small molecule approach is sometimes more effective, for example, in fighting certain types of cancer. In the coming years, small molecule drugs could revolutionize the field of oncology. Small-molecule pills are also more convenient for patients compared to biologics, which are typically given as intravenous infusions in healthcare settings.
Also, small molecule drugs are often cheaper to produce than biologics. This means that they tend to drop dramatically in price after going generic, creating significant savings for programs like Medicare and Medicaid, as well as for patients.
In a world where biologics account for the majority of drug innovation, more patients would require more visits to hospitals and doctors’ offices for treatment. This would not only increase the cost of administering drugs, but would also put poor and marginalized patients at a unique disadvantage. Many of these people are unable to travel for routine care. This is often compounded by issues of lack of childcare and paid doctor’s leaves of absence. The cost of treatment simply doesn’t stop at the cost of medication.
These rules would also discourage biotech companies from researching new uses for their existing drugs. Many drugs, especially cancer treatments, are initially approved to treat one condition, only later approved by the FDA for other diseases. It can cost pharmaceutical companies tens, or even hundreds, of millions of dollars over several years to run those additional trials.
If negotiated pricing goes into effect just nine years after a drug’s initial approval, many companies will conclude that there simply isn’t enough time to recoup the cost of those additional clinical trials. The artificial distinction will effectively rob patients of the life-saving pills that have already been developed, simply because doctors won’t realize that treatment initially approved for one disease also works for others.
Fortunately, Congress has ample opportunity to correct these flaws this year. Lawmakers should allow small molecule drugs the same 13-year exemption from price negotiations as biologics. This small adjustment can bring the IRA closer to the promise of helping families live healthier lives, at a more reasonable cost.
Amy Hinojosa is the President and CEO of MANA, a national Latino organization, the oldest and largest Latino membership organization in the United States, and a founding member of the Health Equity Collaborative. [Colaborativo de Equidad en la Salud].