The evolving landscape of federal and state policies for drug pricing continues to place significant pressure on pharmaceutical manufacturers. The industry already experienced plenty of turbulence in 2023 and it appears likely that this trend will persist throughout 2024. A significant part of this strain stems from the introduction and further development of the Inflation Reduction Act.
Adding to the industry’s woes, states are becoming increasingly assertive in their attempts to regulate drug pricing. In response, the industry has demonstrated a growing inclination to challenge perceived overreaches in court. It’s also anticipated that the 2024 election season will bring about heightened scrutiny for pharmaceutical manufacturers.
The Centers for Medicare & Medicaid Services (CMS) initiated the health care law’s Medicare price control program in 2023, which included selecting the first drugs for mandatory negotiation. Their maximum fair prices are expected to be published by September, as part of the agency’s broad exertion of powers granted under the health care law.
Market activity in 2023 indicates that investors may not have fully factored in the potential impact of this legislation. This outlook could change in 2024, with multiple pharmaceutical manufacturers having contested the health care law in court in 2023, mainly asserting constitutional objections. The litigation may continue in 2024 with likely supplementary as-applied challenges as effects are felt in the real-world.
Concerns are also escalating for the 340B Program, a scheme that allows participating manufacturers to sell drugs at heavily discounted prices to registered providers. However, legal activities, such as state initiatives and potential pricing caps, could indirectly affect federal programs, invariably leading to legal setbacks.
The 2024 election outcome could decisively determine if the US continues to support aggressive drug pricing policies and moves closer to a European-style redistribution model. The current administration is promoting the government-imposed drug pricing model exemplified by the Inflation Reduction Act, marking a significant shift from traditional free-market drug pricing in the US.
Meeting the industry challenges of 2024 head-on requires not only navigating new legal requirements but also staying tuned to developments in Congress and at state levels. However, with the right mix of business leaders and experts, companies can develop proactive strategies that enhance patient access while promoting therapeutic innovation, long considered a hallmark of the US pharmaceutical industry.
This analysis is provided by Christopher Schott, a partner at Latham & Watkins, who specializes in advising on price reporting obligations and market access strategies related to the Medicaid, Medicare, and 340B drug pricing programs.