The Inflation Reduction Act’s Effects on the Life Sciences Industry

These articles analyze the IRA’s potential effects on pharmaceuticals.

Mitigating the Inflation Reduction Act’s Adverse Impacts on the Prescription Drug Market

Coauthored by Darius Lakdawalla and Erin Trish

The Inflation Reduction Act of 2022 (IRA) includes several consequential provisions aimed at reducing drug spending and increasing access to pharmaceuticals for millions of Americans. However, the provisions also limit insurers’ ability to implement cost-containment measures and may discourage investments in new drugs and indications. We offer three recommendations to mitigate these potential unintended consequences. First, the calculation of a “maximum fair price” for drugs should be transparent and focus on measured social value rather than price minimization. Second, post-market approval of new indications should be encouraged by delaying the government price-setting process when new indications are approved. Third, the government should exempt manufacturers from inflation rebate penalties if additional information (e.g., real-world evidence, new clinical trial data, or new indication approvals) demonstrates more value in a drug post-approval. Implementing these three strategies would balance the competing goals of incentivizing innovation, increasing patient access and reducing spending.

Alice Chen, Darius Lakdawalla, and Erin Trish of the University of Southern California and Anup Malani of the University of Chicago are at the forefront of research into the IRA’s potential effects on pharmaceuticals.

A Strategy for Value-Based Drug Pricing Under the Inflation Reduction Act

Coauthored by Darius Lakdawalla and Anup Malani

Medicare drug price negotiation is almost upon us. The Inflation Reduction Act (IRA) mandates that the Centers for Medicare and Medicaid Services (CMS) implement a maximum fair price (MFP) for drug price negotiation beginning in 2026. How should CMS implement such a program given such a short timeline? We recommend a three-step approach to implementing the MFP that moves toward a drug pricing paradigm based on treatment value.

Drug Pricing Law Could Have Unintended Consequences

Coauthored by Alice Chen

The Inflation Reduction Act (IRA) was signed into law in August 2022 with the goal of curbing inflation by, among other things, lowering prescription drug prices. Notable prescription drug provisions of the IRA include the introduction of Medicare drug price negotiations, Medicare inflation rebates, and a redesign of the Medicare Part D benefit structure. Since the law’s passage, the Centers for Medicare & Medicaid Services (CMS) has issued a series of guidance memorandums on how these various provisions will be implemented. However, the full economic impact of the IRA on the pharmaceutical industry remains uncertain. In particular, there may be several unintended economic impacts on pricing, drug access, benefit design, innovation, and competition, particularly for biologics and biosimilar drugs.


Alice Chen

Associate Professor,
Sol Price School of Public Policy;
Senior Fellow,
Leonard D. Schaeffer Center for Health Policy and Economics,
University of Southern California

Darius Lakdawalla

Quintiles Chair in Pharmaceutical Development and Regulatory Innovation, School of Pharmacy,
Professor, Sol Price School of Public Policy,
Director of Research, Leonard D. Schaeffer Center for Health Policy and Economics,
University of Southern California

Anup Malani

Lee and Brena Freeman Professor of Law,
University of Chicago Law School;
Professor by Courtesy,
Pritzker School of Medicine,
University of Chicago

Erin Trish

Associate Professor,
Department of Pharmaceutical and Health Economics, School of Pharmacy,
Co-Director, Leonard D. Schaeffer Center for Health Policy and Economics,
University of Southern California