Ending the ‘Pill Penalty’ Costly for CMS and Medicare Beneficiaries, Say Harvard Researchers

The Inflation Reduction Act (IRA) exempts biologics from CMS price negotiation for 13 years and small molecules for nine. The pharmaceutical industry has been pushing for a change that would give small molecules and biologics the same 13-year exemption. A bill to end the “pill penalty,” as it has been dubbed, has been introduced in Congress, and the healthcare executive order signed by President Donald Trump on April 15 seemed to endorse the change.

The flip side to the pill penalty for drug companies is a loss of savings to the Medicare program were the negotiated prices for small-molecule drugs to be delayed four years.

In an article posted on Health Affairs’ Forefront blog, which functions as an open forum for outside contributors, Harvard researchers identified 19 small-molecule drugs that are likely to be eligible for price negotiation next year and, therefore, might be affected by an extension of exemption from IRA price negotiation. An additional four would meet the eligibility criteria in 2027 by their reckoning. The researchers — Christopher Cai, M.D.; Aaron Kesselheim, M.D., J.D., M.P.H.; and Benjamin Rome, M.D., M.P.H.— calculated that Medicare spent $14.9 billion on those 23 drugs in 2022, a sum that they said could be expected to grow to $24.1 billion during their first year of price negotiation eligibility.

Biktarvy (bictegravir, emtricitabine, and tenofovir alafenamide), an HIV antiviral; Erleada (apalutamide), a prostate cancer drug; and Epclusa (sofosbuvir and velpatasvir) are among the 23 drugs.

Cai, Kesselheim and Rome did not attempt to calculate the amount of lost savings to CMS from exempting small-molecule drugs from price negotiation for an additional four years but made a general point that “delaying negotiation for small-molecule drugs from nine to 13 years would result in billions of dollars in additional spending on drugs used to treat cancer, HIV, hepatitis C and other conditions for several years.” They also argue that the lower prices negotiated under the IRA have resulted in lower out-of-pocket costs for beneficiaries, not just savings for CMS and benefits for its coffers. They assert that ending the pill penalty will also mean less time for CMS and beneficiaries to benefit from negotiated prices before generics come on the market to lower prices through competition.

Somewhat mischievously, Cai, Kesselheim and Rome call for a halt to the “biologics bonus” rather than an end to the pill penalty. “If policymakers desire to treat biologic and small-molecule drugs equally, shortening the waiting period for biologics — ending the biologics bonus — rather than lengthening the period for small-molecule drugs is a far more sensible approach,” they wrote.