Impact of Inflation Reduction Act on Biosimilars

TL/DR –

The Inflation Reduction Act (IRA), signed into law in August 2022, has introduced several provisions affecting the pharmaceutical industry, particularly biosimilars. The IRA promotes adoption of biosimilars by increasing their reimbursement rate in Medicare Part B to 108% of Average Selling Price (ASP) for a 5-year period until December 2027, but this applies only to qualifying biosimilars with an ASP lower than the reference drug’s ASP in a given quarter. Additionally, the IRA has introduced an inflation penalty for Medicare, preventing manufacturers from increasing the price of a drug beyond the rate of inflation without having to pay the difference as a rebate to Medicare.

Inflation Reduction Act and Its Impact on Biosimilars

The Inflation Reduction Act (IRA), enacted in August 2022, brought significant changes to the prescription drug industry. This has influenced the dynamics of the biosimilars market, especially high-cost biologic drugs. This article focuses on the impact of some of the Act’s provisions on biosimilars.

Higher reimbursement for biosimilars in Medicare Part B

Most Part B drugs are reimbursed at 106% of Average Selling Price (ASP). The IRA, however, increases the reimbursement for biosimilars to 108% of ASP through Dec 2027, to promote their adoption. This increased rate is only applicable to biosimilars whose ASP is less than the reference drug’s ASP in a given quarter. The 5-year term begins from the day the ASP is set, meaning a biosimilar launched in late 2027 would still be eligible for higher reimbursement until 2032.

Benefit redesign could alter the high price, high rebate preference

The IRA provisions also aim to reduce patient out-of-pocket costs and Medicare spending through Part D benefit redesign. This would shift significant liability (60%) of drug cost to plan sponsors in the catastrophic phase, potentially moving them away from the high list price/high rebate pricing model.

Medicare inflation penalty to limit brand price increases

The IRA introduced a provision for Medicare, similar to Medicaid, where if price increases are higher than inflation, manufacturers are required to pay a rebate to Medicare. Kaiser Foundation analysis showed that half of all drugs covered by Medicare had list price increases exceeding inflation between 2019 and 2020. Given the significant number of patients under Medicare, inflation penalties may deter brands from steep price increases, affecting the value proposition for biosimilar entrants upon loss of exclusivity.

References
1. Center for Biosimilars
2. CMS
3. Kaiser Foundation
4. JAMA Network
5. King & Spalding

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