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At the start of last week’s Pharma Market Research Conference PMRC in Newark, attendees were given an in-depth and practical walkthrough of the Inflation Reduction Act (IRA) and its implications for biopharma. The session, delivered by Sarah Rayel, Deputy Vice President of Policy and Research at PhRMA, stood out not because it turned insights professionals into policy experts -- but because it met the audience exactly where they sit.
That choice by the PMRC organizers was a smart one. The IRA now permeates our work in insights and analytics -- shaping forecasts, pricing assumptions, access dynamics, and long-range portfolio decisions -- yet it is rarely the core focus of our day-to-day roles. Most of us do not have the time, or frankly the mandate, to follow CMS guidance updates, court challenges, or negotiation mechanics in depth. And yet, the downstream consequences of those details increasingly show up in the questions we are asked to answer.
The need for a more basic and fundamental IRA backgrounder is precisely what motivated this essay.
My goal is not to re-litigate the politics of the IRA, nor to offer a legal or policy critique. Instead, it is to synthesize what matters most for insights and analytics (I&A) professionals across pharmaceutical and biotechnology organizations: where the IRA came from, how it actually functions, the terminology that frames internal discussions, and -- importantly -- how recent developments, including the latest CMS drug selection lists, should inform our work.
For those who found the PMRC discussion valuable but wished for a durable reference point, this essay is intended to serve that role. And for those who were not in the room, consider this a pragmatic summation of a policy that is no longer abstract, theoretical, or “someone else’s problem.”
The IRA was enacted in August 2022 and represented one of the signature domestic policy initiatives of the Biden administration. While the legislation addressed a broad range of issues -- including climate investment, tax reform, and deficit reduction -- its drug pricing provisions were among the most consequential changes to U.S. pharmaceutical policy in decades.
The IRA emerged from a convergence of political, fiscal, and public pressure points that had been building for years. Rising prescription drug costs had become a persistent voter concern, especially among Medicare beneficiaries, and federal spending on pharmaceuticals continued to skyrocket. At the same time, Medicare -- unlike commercial payers or Medicaid -- had long been legally prohibited from negotiating pharmaceutical prices directly, even as it remained one of the largest purchasers of medicines in the world.
The IRA fundamentally altered that dynamic. For the first time, Medicare was granted authority to negotiate prices for selected, high-spend drugs that lack generic or biosimilar competition. The stated objective was straightforward: reduce federal drug spending while lowering out-of-pocket costs for seniors. The execution, however, is far more complex, introducing new pricing constructs, statutory ceilings, and compliance requirements that sit alongside, rather than replace, existing market access mechanisms.
Importantly, the law was intentionally designed as a phased implementation. Negotiation authority ramps up over multiple years, with defined timelines for drug selection, negotiation, and price applicability. That deliberate pacing is now visible in practice. What began with uncertainty around process, scope, and legal durability has increasingly given way to more predictable -- and, from an analytical standpoint, more modelable -- outcomes as successive negotiation rounds are completed.
Under the IRA, the Centers for Medicare & Medicaid Services (CMS) is required each year to identify a defined set of the highest-spend drugs covered under Medicare Part D -- and, more recently, Medicare Part B -- for inclusion in a government-led price negotiation process. Selection is not optional for manufacturers. Companies whose products are chosen must either engage in the negotiation framework established by CMS or face severe penalties, including escalating excise taxes and the effective loss of access to the Medicare market. In practical terms, participation is mandatory, and the negotiation process functions less as a traditional commercial dialogue and more as a regulated price-setting mechanism with clearly asymmetric leverage.
Key structural elements include:
For I&A teams, the lag between selection, negotiation, and price implementation is critical. The revenue impact is real -- but it is not immediate. That gap creates both risk and opportunity for strategic planning.
The most recent CMS announcements reinforce a key lesson: the IRA is no longer experimental -- it is operational.
In the third round of negotiations, announced recently, CMS selected 15 drugs including Lilly’s Trulicity, Gilead’s Biktarvy, AbbVie’s Botox, and Takeda’s Entyvio. Notably, Medicare Part B drugs were included for the first time, expanding the scope beyond retail pharmacy products into physician-administered therapies.
Meanwhile, CMS has now unveiled negotiated prices from the second round, including for Novo Nordisk’s semaglutide franchise (Ozempic, Wegovy, Rybelsus). Discounts reached as high as 85% versus list price -- numbers that understandably attract headlines.
Yet equity analysts’ reactions have been measured. Many of the selected drugs were already facing patent cliffs, competitive pressure, or high existing gross-to-net discounts. In several cases, manufacturers have publicly stated that negotiated outcomes were “within expectations” and already baked into long-range forecasts.
For professionals in I&A, this is an important reframing: headline discounts do not equal net revenue impact.
To operate effectively in this environment, I&A teams need a shared lexicon. Below are several IRA terms that increasingly shape internal discussions and external narratives.
The government-negotiated ceiling price for a selected drug under Medicare. MFP applies only to Medicare utilization, not commercial markets; but it indirectly influences broader pricing strategy. I&A Implication: Forecasting models must treat MFP as a distinct price corridor, not a proxy for net price erosion elsewhere.
The difference between list price and realized net price after rebates, discounts, and fees. I&A Implication: IRA discounts often apply to list price, but products with high existing gross-to-net may experience far less incremental net impact than the headline suggests.
Part D covers retail prescriptions; Part B covers physician-administered drugs. I&A Implication: Part B inclusion introduces buy-and-bill dynamics, site-of-care considerations, and provider behavior variables that many analytics teams are less accustomed to modeling.
A former Part D program that required manufacturers to discount drugs in the coverage gap. It ended in 2025. I&A Implication: Historical benchmarks that include CGDP must be normalized when projecting IRA-era savings and margins.
Certain orphan drugs (i.e., medicines for rare diseases) may be excluded from negotiation, depending on indications and disease scope. I&A Implication: Indication-level modeling is no longer optional. Portfolio strategy must consider how label expansion can inadvertently accelerate IRA exposure.
One of the most misunderstood components of the IRA is how negotiated prices translate, or fail to translate, into patient savings.
Early data suggest that while Medicare may save billions, individual patient experiences vary widely. And benefit design matters. Seniors on coinsurance often see larger savings than those on fixed copays. Meanwhile, premiums may rise even as drug prices fall.
The IRA’s most direct and reliable patient benefit may ultimately be the $2,000 annual out-of-pocket cap, rather than negotiated prices themselves.
For analytics teams, this complexity matters because utilization behavior responds to perceived affordability, not policy intent. Models that assume uniform demand elasticity will miss important second-order effects.
Multiple manufacturers continue to challenge the IRA in court, arguing constitutional and statutory violations. To date, the government has prevailed in every substantive ruling, and courts have shown little appetite for reversing the program.
From an I&A perspective, the more relevant takeaway is this: markets are already pricing in the IRA. Wall Street equity analysts, management teams, and investors increasingly treat negotiated pricing as a known constraint rather than a speculative risk.
That shift reduces volatility, but increases the burden on I&A teams to deliver precision.
The IRA does not eliminate the need for sophisticated analytics -- it intensifies it. Three implications stand out:
Traditional volume-and-price models are insufficient without explicit policy assumptions. Timing of selection, negotiation rounds, and effective dates must be embedded into long-range planning.
Manufacturers still argue that negotiated prices fail to reflect clinical and economic value. I&A teams play a central role in substantiating, or challenging, those claims with RWE, outcomes data, and comparative effectiveness analyses.
IRA exposure varies by molecule type, indication mix, and lifecycle stage. I&A teams must support scenario planning that informs portfolio prioritization, indication sequencing, and even M&A strategy.
The most important insight may be this: the IRA is not a transient policy experiment. It is a durable feature of the U.S. pharmaceutical landscape.
As CMS moves toward selecting up to 20 drugs annually, and as negotiated prices begin to accumulate across therapy areas, the industry must adapt, not retreat. Early evidence suggests that many companies already are.
For I&A professionals, that adaptation starts with fluency. Fluency in policy mechanics. Fluency in data nuance. And fluency in translating complexity into decisions that company managers can act on.
The IRA raises the bar for what “good analytics” looks like. Those who rise to meet it will shape not only how their organizations respond; but how value itself is defined in the next era of biopharma.
