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Medicare price negotiation and pharmaceutical innovation following the Inflation Reduction Act

Nature Biotechnology volume 42, pages 406–412 (2024)Cite this article

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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.

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Fig. 1: Global prescription drug revenue subject to Medicare price negotiation by company.
Fig. 2: Share of 2022 global pharmaceutical revenue subject to Medicare drug price negotiation.
Fig. 3: The 250 best-selling prescription drugs by 2022 US net revenue.
Fig. 4: Illustrative impact of Medicare price negotiation on small-molecule drug revenue.

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Acknowledgements

We thank A. Tellier for his contributions to the revenue analysis.

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Authors and Affiliations

  1. Harvard Kennedy School of Government, Cambridge, MA, USA

    Matthew Vogel & Amitabh Chandra

  2. Weill Cornell Medical College, New York, NY, USA

    Pragya Kakani

  3. Harvard Business School, Cambridge, MA, USA

    Amitabh Chandra

  4. Questrom School of Business, Boston University, Boston, MA, USA

    Rena M. Conti

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Correspondence to Matthew Vogel.

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Competing interests

R.M.C. served as an unpaid special government advisor to the Centers for Medicare and Medicaid Services in 2022 and 2023. Her work is supported by grants and awards from the National Cancer Institute, the National Science Foundation, the American Cancer Society, the Leukemia and Lymphoma Society, the Sloan Foundation and Arnold Ventures and consulting fees from Greylock McKinnon and Associates and Keystone Consulting unrelated to this study. A.C. lists disclosures unrelated to this study at https://www.hks.harvard.edu/faculty/amitabh-chandra.

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Supplementary Tables 1–4, Fig. 1 and Methods

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Vogel, M., Kakani, P., Chandra, A. et al. Medicare price negotiation and pharmaceutical innovation following the Inflation Reduction Act. Nat Biotechnol 42, 406–412 (2024). https://doi.org/10.1038/s41587-023-02096-w

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