PM360 asked experts in developing market access strategies about how the Inflation Reduction Act will impact drug pricing negotiation and other access-related issues as well as what other big trends in the space will force companies to rethink their strategies. Specifically, we asked them:
- What impact should market access professionals expect from the Inflation Reduction Act (IRA)? What other policy issues or potential changes by the government should companies be aware of?
- What are the biggest growing trends within the market access space beyond the IRA that the will or already are forcing the industry to rethink its strategies? How should life sciences companies adjust to these trends?
Medicare price negotiation is certainly the most oft-discussed provision of the IRA, but the extent to which the negotiated “Maximum Fair Prices” (MFP) tend to gravitate towards the statutory maximums vs. meaningfully lower prices will largely depend on HHS and CMS’ interpretation of the act’s mandate. However, we expect drugs without strong therapeutic alternatives to have an advantage in negotiations, while drugs in highly competitive classes will be negotiating from a weaker position. We also expect Medicare price negotiation to meaningfully reduce net pricing for commercial insurers—since MFP rebates will be included in average sales price (ASP) calculations upon which reimbursement formulas for outpatient Part B drugs are often calculated—and for non-negotiated drugs within the same class looking to retain access among cost-sensitive payers.
In the near term, manufacturers may need to reconsider price increase strategy given inflation penalties for Medicare beneficiaries. Reduced patient out-of-pocket (OOP) costs in Part D have the potential to reduce beneficiary reliance on foundation support, with commensurate reductions in manufacturer donations required. This is likely offset, however, by higher Part D rebate obligations, especially for high-cost specialty drugs.
The IRA is squeezing the financial balloon from two ends. On one end, it imposes higher costs to Medicare plan sponsors by significantly increasing their liabilities in the catastrophic phase, which is further complicated by capitated premium increases. On the other side, drug manufacturers are facing the squeeze, with caps on price inflation and a mandated 20% discount in the catastrophic phase. This is especially significant for manufacturers of high-cost specialty drugs, who will now face a recurring additional 20% charge on virtually every prescription fill. The resulting impact may be a stronger payer focus on achieving lowest net cost and, in some instances, restricted formulary access for drugs that do not meet a plan sponsor’s cost threshold.
Our initial external pulse of industry payer reactions to the IRA indicated a potential preference for low-WAC drugs, including signals for expanding access to biosimilars. However, payers reported they will also pursue negotiations for steeper rebates. With mixed focus on low-WAC strategies and driving rebates, expect low net cost to prevail. To counter the balloon squeeze, manufacturers may look toward innovative contracting, partnerships, and evidence generation to substantiate the value of their drugs.
The IRA presents market access teams with a unique opportunity to make recommendations to CMS regarding the evidence and methodology that will be applied in evaluating drugs for upcoming Medicare negotiations that will lead to price adjustments in 2026. Quality and value measurements commonly used outside of the U.S. that comprise cost-effectiveness analyses and the application of quality adjusted life years (QALYs) could and should be the basis for CMS evaluation, rather than simply volume and total spend. The industry should make recommendations on approaches that reward high value, high-quality treatments.
Given the 9- and 13-year lag period for small molecule drugs and biologics, respectively, before negotiations commence with Medicare, manufacturers can seize the opportunity to develop meaningful real-world evidence in support of innovative products. Pharma can demonstrate the quality and value of treatments in several ways, including: conducting health economic studies that measure the QALYs gained when using treatments; incorporating patient-reported outcome measures (PROMs) in clinical trials to provide data on QALYs gained; and developing real-world data from claims databases, notably from electronic health records, to provide insights into QALYs gained by patients in a real-world setting.
One significant market trend is the average manufacturer price (AMP) cap removal for Medicaid pricing. For the AMP cap removal, a subset of brands exist that are the perfect storm of legacy products—with a significant share in Medicaid—that are heavily contracted in the commercial space, and that have taken regular price increases beyond the consumer price index (CPI) for multiple years. For these products, effective January 1, 2024, the manufacturer may have to pay Medicaid more than the AMP rate (the effective cost of the drug) to stay on the Medicaid formulary. Manufacturers and the value chain are struggling to find solutions, but none is optimal for any party.
Another issue is the technology of oncology care is outpacing the evolution of the distribution channel. We see a significant rise in orphan or rare disease products with very challenging fulfillment requirements. The vertical integration of payer, distributor, and provider organizations seeks to alleviate these challenges, but things such as in-office dispensing, white bagging, specialty distribution, and specialty pharmacy are not always aligned with the needs of the payer or physician group. The business-to-business market leaders must find new and creative ways to help patients receive their treatments.
I see three things to watch, starting with Eli Lilly’s decision to lower the price of older insulin brands, Novo Nordisk following suit, and Sanofi also cutting the U.S. price of its most prescribed insulin brand. Truth is, many patients already pay less than the newly announced costs, whether they are covered by traditional health insurance, Medicare, or Medicaid.
The 340B battle will rage on. Given the volume of 340B sales (13% of total U.S. pharma sales in 2020) and the size of 340B discounts (25-50%), companies may see significantly reduced revenues for important products. On the other hand, in late January a federal appeals court ruled in favor of three pharma companies suing to be allowed to limit the number of contract pharmacies they sell products to at 340B discounts. Stay tuned.
Finally, we’ll see a battle royale as nine different biosimilars compete to carve a hunk out of industry behemoth Humira. The first agent out, Amgen’s Amjevita, launched on Jan. 31 with two different pricing approaches, borrowing from a similar strategy adopted earlier by Viatris for Lantus biosimilar Semglee. Expect the nine competitors to explore Kotler’s 4Ps of Marketing to gain share in this lucrative and competitive marketplace.
The growth of orphan, rare disease, and targeted therapies will continue as will the evolution in utilization management strategies by payers (government and commercial) and population health decision-makers (PHDMs). The task of balancing affordability and patient access through traditional means such as prior authorization, step therapy, quantity limits, etc., is daunting given the challenges of small patient populations and the severity of these conditions. Often, limited clinical evidence is available from their smaller, potentially unrandomized clinical studies as opposed to the larger, randomized, controlled clinical trials for larger disease states that usually form the basis for payer coverage criteria.
As a result, use of alternative payment models and benefit designs by payers and PHDMs continues to grow. For example, value-based agreements for targeted gene therapies might include rebates based on outcome-based or evidence-based measures of treatment success within a defined timeframe. This can also allow manufacturers to offer more than one “best price” for payers to choose from, depending on the requirements for success. In general, there will likely be an increasing variety of cost, coverage, risk aversion (e.g., reinsurance, carve out), and payment model implications across government, commercial, and self-insured organizations.