Episode 401

EP401: The Most Interesting Questions About the IRA Drug Price Negotiations, With Peter J. Neumann, ScD

Apr 20, 2023

31:37

Episode Description

The Inflation Reduction Act gives Medicare, for the first time, the authority to negotiate prices directly with drug manufacturers — but whether those negotiated prices actually track a drug's value is a question host Stacey Richter says she doesn't hear discussed often enough. In this episode, she talks with Peter J. Neumann, ScD, director of the Center for the Evaluation of Value and Risk in Health (CEVR) at Tufts Medical Center and coauthor, with Joshua Cohen and Daniel Ollendorf, of The Right Price: A Value-Based Prescription for Drug Costs. Dr. Neumann walks through what the IRA's negotiation provisions actually do, and roughly eight second-order effects — from launch-price inflation to shifting R&D incentives — that could determine whether the law ends up rewarding genuinely valuable drugs or just squeezing list prices.

WHAT YOU'LL LEARN

✅ How CMS's negotiation authority actually phases in: the top 10 Part D drugs in 2026, 15 Part D drugs in 2027, and 15 Part B and D drugs in 2028 — with small molecules eligible after 9 years on the market and biologics after 13

✅ Why that 9-year/13-year gap creates a strong incentive for pharma to favor biologics over small molecules, potentially at the expense of needed drug categories like new antibiotics

✅ Why value-based pricing and cost containment are not the same goal, and why Dr. Neumann says it's unclear whether the IRA is really designed to achieve the former or is mostly about the latter

✅ How the law's incentive structure could push manufacturers to raise launch prices before a drug becomes subject to inflation caps and eventual negotiation

✅ Why a high price doesn't necessarily mean poor value — and why Dr. Neumann argues some million-dollar drugs are reasonably priced given the health benefits they deliver

✅ Why siloed pharmacy and medical budgets can cause high-value drugs to be underused, even when they generate real downstream medical savings

WHY THIS MATTERS

The point Dr. Neumann keeps returning to is that pricing on value requires information the current system rarely provides — and the law itself bans Medicare from using quality-adjusted life years, one of the few standardized tools for comparing value across wildly different drug categories. Whether the IRA ends up rewarding therapeutic advances or simply squeezing list prices will depend entirely on how CMS operationalizes it over the next several years — and, as Stacey notes, that's a story still being written.

=== LINKS ===

🔗 Show Notes with all mentioned links: Episode Page

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00:00 Introduction.

09:33 Is it imperative that drugs whose patents are expiring have their prices negotiated?

10:50 "We need innovation; we want to encourage innovation."