Impact of Medicare Price “Negotiation” Program on small and large molecule medicines

May 2024
CRA Oncology experts

The Inflation Reduction Act (IRA) directs the U.S. federal government to set a “Maximum Fair Price” (MFP) for the medicines with the highest spending in Medicare. The MFP will be implemented for selected small molecule drugs as early as nine years after approval, and as early as 13 years after FDA approval for selected large molecule drugs (i.e., biologics).1 We examine the differential impact of this policy and other aspects of the MFP process on these two types of medicines and consider implications of the associated revenue reduction resulting from the MFP.

We find that small molecule drugs comprise 70% of the drugs selected for an MFP effective in 2026 and are likely to make up 93% of the drugs selected for an MFP effective in 2027, and 87% of the drugs selected for an MFP effective in 2028. Furthermore, small molecule oncology therapies are estimated to be the predominant type of drug and therapeutic class affected by the MFP across the three years analyzed, followed by small molecule therapies for respiratory conditions and small molecule medicines for diabetes.

We conservatively project that, if the MFP is set at the ceiling price set under the IRA, expected revenue from small molecule drugs with an MFP will be reduced by 28% over 18 years compared to a 11%-15% revenue reduction over 18 years for the two different types of large molecule drugs examined.

The impact of the IRA on revenue reduction is likely underestimated in our analysis as we do not include the impact of other IRA policy changes, nor do we estimate how setting an MFP for one drug is likely to impact other drugs in the therapeutic area. Both dynamics are expected to differentially impact small molecule drugs.

The differentially large impact of MFPs on the revenue from small molecules is a concern for the following reasons:

  • Small molecule drugs are essential to treating certain conditions including cancer, which cannot today be addressed by large molecules.
  • Savings achieved when small molecule medicines lose exclusivity and generic medicines enter the market are sizeable, particularly when compared to biosimilars. Generic price competition may be threatened by the reduction in market size as a result of MFPs.
  • Small molecule medicines are typically taken at home, rather than infused in a health provider office, and that mode of administration is easier on patients, particularly those who may not have ready access to where providers are located.

To mitigate the disincentives for investment in small molecule medicines, Congress could consider ways to delay when small molecules are eligible for an MFP.

This analysis was conducted by Charles River Associates (CRA) conducted for and funded by Gilead Sciences (Gilead).

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