Inflation Reduction Act of 2022 – Deep Dive on Healthcare Provisions – Part 1

The Inflation Reduction Act is the most significant healthcare legislation to pass since the Patient Protection and ACA [Affordable Care Act], also known as Obamacare, went into a law roughly 12 years ago in March 2010. It is rather astounding that such an important legislation was passed under a reconciliation process with voting breaking down by party affiliation – it had universal Democratic support and uniform Republican opposition. How have we arrived at a place and time in the US where we’re using reconciliation on both sides of the aisle to pass really important legislation when the process was simply meant to ease the burden of passing pure spending bills?

However, in reviewing the Byrd rule, I was surprised that most of the provisions could be brought into the reconciliation process. The Byrd rule states, “A provision is considered extraneous if it (a) does not produce a change in outlays or revenues, (b) increases the deficit beyond the budget window and (c) makes changes to Social Security.” We’re talking about allowing Medicare to directly negotiate with drug manufacturers, which is a huge piece of legislation. It doesn’t change Social Security, it didn’t increase the deficit – it was actually deficit-reducing and it clearly produces a change in outlays or revenues. When you think about the principles behind what should and shouldn’t be included in the reconciliation process, the principles were to expedite dollars and cents negotiations – we don’t have to pull in 60 senators to pass a budget at the end of the night. It’s now been bastardised to include hugely important changes in public policy, yet the Byrd rule doesn’t prevent it by this definition of extraneous. Might we see litigation around these issues as we move towards implementation, just as lawsuits were filed against the ACA?

The legislation proposed raising USD 737bn via various methods, while making just USD 437bn in investments and resulting in a USD 300bn of total deficit reduction. Maybe not the right time to pull back on fiscal stimulus when we’re going into a recession, but I think when looking at the biggest revenue raised, we’re looking at USD 265bn coming from prescription drug pricing reform, and that’s as scored by the CBO [Congressional Budget Office]. The biggest investment was the USD 369bn earmarked for energy security and climate change. Should the government be picking winners and losers? The easy answer is they do it all the time, but in this case, they’re clearly saying, “Shame on the drug manufacturers and by the way, I love green energy.” Is that something we should be doing in the US?

What’s your assessment of the prescription drug pricing reform? We talked about the implementation delay until 2026. Obviously, this is where you’ve got to pass it to figure out how it works – the famous words by Nancy Pelosi with previous legislation. We need to figure out between now and 2026 how to do this, but how might this change when the time approaches? Can they actually kill this part of the bill given it still wouldn’t be deficit increasing? Has this intentionally been set up for an exit plan?

Based on the Byrd rule and the reconciliation process, my very shallow understanding of it is you can’t raise the deficit, but a USD 300bn of deficit reduction is built in, so you could completely get rid of this provision, which is the biggest pay-for, and still be completely within the grounds of the reconciliation process and in conformity with the Byrd rule. What I was trying to get at was the raise, meaning in terms of all the pay-fors, even without this provision would still be USD 170bn greater, or if you were to take out the loss limitation extension that was pulled out last minute, you’ve got USD 120bn of wiggle room even without this. Maybe this is a midterm win – we’ve done something on drug pricing but in reality, nothing will happen because we can kill the provision and nothing happens. Is that the case or do they have to replace it?

What drugs will most likely get hit? When you look at USD 10.6bn on a USD 39.4bn spend, assuming the top 10 get hit, that’s about a 27% cut to these 10 drugs, and on average these will impact companies such as Bristol Myers, J&J, Merck, Eli Lilly, AbbVie, Sanofi, Pfizer, AstraZeneca, GSK and Novo Nordisk. What do you think companies will do between now and 2026 to influence not being on the list of 10-25 names as we move from 2026-27?

According to the White House, Americans pay 2-3x what citizens of other countries pay for prescription drugs. Why is that? 5-7 million more Medicare beneficiaries could see their prescription drugs cost go down. I think everyone is for that – no one wants elderly people on a fixed income having to make a trade-off between eating and taking pills, so there’s a problem there and I think we can all agree that something needed to be done. Why weren’t our politicians on both sides of the aisle looking after people ahead of having to do something through reconciliation? Do you have any comments on how topsy-turvy the spending is and what we should be talking about in terms of real, future solutions?