The Inflation Reduction Act in Effect: Implications for Pharmaceutical Research and Development (R&D)


Mock G1, Frois C1, Bryan A2
1Trinity Life Sciences, New York, NY, USA, 2Trinity Life Sciences, New York, MA, USA

Presentation Documents


The Inflation Reduction Act (IRA) seeks to limit Medicare spending, although the indirect effects remain unclear. This research aims to understand how the IRA will impact pharmaceutical R&D investment.


The potential R&D impact was assessed for each of the following IRA features: 1) Medicare Part D $2,000 out of pocket (OOP) cap, 2) price increase penalties, and 3) minimum price discounts/negotiations for therapies over time.


The Part D OOP cap will likely have a positive impact on R&D as it increases manufacturers’ potential launch prices since Medicare patients are insulated from high OOP costs.

By curbing the ability of manufacturers to increase prices post-launch, price increase penalties are expected to have a negative impact on R&D, particularly for therapies with a large Medicare patient base. However, the effect may be muted in practice, as manufacturers’ loss in future pricing is in part offset by higher launch prices.

Finally, the R&D impact of minimum price discounts/negotiations depends critically on the long-term (LT) competition expected. For assets with significant LT competition expected, the R&D impact will be limited, as the future loss in pricing will be due to limited volume. However, for other assets the negative impact on R&D may be substantial, as the IRA mandates steep minimum price discounts (i.e., ≥ 25%) for products on market after 9 and 13 years respectively for small molecule and biologic therapies.


The impact of the IRA on R&D will vary across products. While for most products the R&D impact may be positive due to the Part D OOP cap and resulting higher launch prices, the impact will be negative for assets with limited LT competition expected. A key uncertainty is if payers will react to higher launch prices with stricter management, further impacting profitability and indirectly R&D.

Conference/Value in Health Info

2023-05, ISPOR 2023, Boston, MA, USA

Value in Health, Volume 26, Issue 6, S2 (June 2023)




Health Policy & Regulatory

Topic Subcategory

Insurance Systems & National Health Care, Pricing Policy & Schemes, Public Spending & National Health Expenditures, Reimbursement & Access Policy


Biologics & Biosimilars, Generics, Oncology, Rare & Orphan Diseases

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