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USC White Paper: “Mitigating the Inflation Reduction Act’s Adverse Impacts on the Prescription Drug Market”

That is the title of a new USC Schaeffer Center white paper authored by Dana Goldman, Joe Grogan, Darius Lakdawalla, Barry Liden, Kyi-Sin Than, Erin Trish and myself. An excerpt from the press release is below, and the full white paper is here (HTML, PDF).

1. Bring transparency and a focus on value to the IRA price-determination process.

To assess value, economists commonly use cost-effectiveness analysis (CEA), but traditional, quality-adjusted life-year-based CEA can discriminate against patients who are disabled, elderly or have complex conditions. Generalized risk-adjusted cost-effectiveness (GRACE) is a new method that takes into account these concerns by aligning estimates with patient preferences. Specifically, GRACE accounts for the fact that people value health gains most when facing very poor quality of life.

“At risk is the ability to put in place a transparent framework that reflects patients’ interests,” says Darius Lakdawalla, director of research at the USC Schaeffer Center. “By using a framework like GRACE, regulators could in a transparent, clear way evaluate the value of new technologies and the benefit they offer to patients.” Without such a framework, it is unclear how patient preferences will be systematically considered, argue the researchers. 

2. Incentivize the production of new information about effectiveness.  

Many drugs acquire new indications over several years after the drug is launched and real-world data of alternative beneficial uses is gathered, which can help many more patients than originally intended when the drug was discovered. Delaying price negotiation when new, valuable evidence is created would incentivize manufacturers to invest in the clinical trials necessary to gather that evidence.

3. Allow exceptions to the IRA inflation rebates when new evidence is acquired.  

Finally, the researchers recommend that HHS implement a more flexible, three-part pricing framework that is tied to real-world data about the value of these drugs, allowing for increased pricing for drugs that work better, and lower prices for those that don’t.

“The U.S. develops more biomedical breakthroughs than any other country,” says Joe Grogan, a nonresident senior fellow at the USC Schaeffer Center. “Regulators need to ensure that the implementation of the IRA does not jeopardize this innovation and the health of future generations.”

The three recommendations aim to balance the IRA’s goals of incentivizing innovation, increasing access and reducing cost.

You can read the full white paper here (HTML, PDF).