How the Inflation Act of 2022 has Impacted the Pharmaceutical Industry

Amanda Scott

Associate Editor

Loyola University Chicago School of Law, JD 2024

Prescription drug price increases have long been a detriment to Americans. The Inflation Reduction Act (the Act) is in part designed to assist in this corporate pharmaceutical problem. This Act plans to do this through the implementation of seven major prescription drug provisions. Two of the major ones are requiring negotiations for certain drug prices by the federal government and limiting the monthly cost-sharing for insulin to $35. Through these changes along with various others, advocates hope that the burden will be lifted off Medicare beneficiaries. It has also been estimated that the Act will work to reduce the federal deficit by $237 billion over 10 years (2022-2031).

Prescription drug provisions 

Seven major prescription drug provisions are included in the Act. Two of the most notable provisions in the Act require the federal government to negotiate prices for certain drugs and to limit monthly cost sharing of insulin to $35. Other provisions include the requirement of drug companies to pay rebates to Medicare in the case that the drug prices rise at a rate quicker than inflation for the drugs Medicare beneficiaries use. Additionally, pending Medicare Part D enrollees are being capped. Medicare Part D  is an optional program that assists Medicare beneficiaries to pay for self-administered prescription drugs.

There is also a provision to eliminate cost-sharing for adult vaccines that are covered by Medicare Part D and another provision that will expand the eligibility for full benefits for the Medicare Part D Low-Income Subsidy Program. The final provision in this Act regarding prescription drugs is the further delay of the implementation of the Trump Administration’s drug rebate rule.

Negotiations for certain drugs prices required by the federal government

Several drugs that are covered under Medicare Part B and Part D will require the federal government to negotiate prices for them. This Act is amending the existing non-interference clause through the addition of an exception that requires the secretary of the Department of Health and Human Services to negotiate with drug companies the prices of some single-source brand name drugs or biologics that do not have generic or biosimilar competitors that are covered under Medicare Part D (starting in 2026) and Part B (starting in 2028). The drugs that will be negotiated will be picked from the 50 drugs that contribute to the highest Medicare Part D spending along with the 50 drugs with the highest total Medicare Part B spending.

There will be consequences for the companies that do not comply with this provision. For drug companies that do not comply with the negotiation requirements, an excise tax will be levied. This tax will begin at 65% of a product’s sales and will subsequently increase by 10% increments every quarter until it reaches 95%. Instead of paying the tax, they could also opt to remove the totality of their drugs from coverage under Medicare and Medicaid. Another alternative is for manufacturers to pay a civil monetary penalty that will multiply the difference between the price charged and the maximum fair price by ten. Essentially, if companies do not comply with the negotiation rule, they will face detrimental monetary actions.

This provision is expected to decrease the pressure on Medicare D premiums as well as out-of-pocket drug costs. However, the impact on the development of new drugs is not expected to be high, as it is expected to only reduce by 1%.

Insulin cap

Starting in 2023, this Act will limit the monthly cost-sharing for insulin to $35 for those with Medicare. This monthly cap is anticipated to lower out-of-pocket costs for insulin users in Medicare Part D without low-income subsidies. To put in perspective how many people this will impact, in 2020, 3.3 million people fit into this exact category. Insulin is also a tier 3 category, signifying that it is the preferred drug tier. It is a necessary daily drug for millions so making it more accessible to low-income populations is critical.

Typically, it had a $47 copayment per prescription throughout the initial coverage stage. However, once the coverage gap phase is met, which will be with a drug of this nature, insulin users face a 25% coinsurance rate, which made it turn into $100 or more per prescription in out-of-pocket costs. Further, this policy change is predicted to lead to a $5.1 billion increase in federal spending over a 10-year period.


While this Act is a step towards more affordable and accessible healthcare treatment, it is also expected to lead to a loss in revenue for biopharmaceutical manufacturers. All these provisions regarding the pharmaceutical industry are aimed at easing the burden on Medicare beneficiaries. They were not designed with the intention of benefiting the manufacturers. This Act is overall going to have a positive impact on many people. To further mitigate the corporate pharmaceutical epidemic, the implementation of more Acts of this nature must occur.