IRA Journey Update

Pharmaceutical CommercePharmaceutical Commerce - June 2023
Volume 18
Issue 3

The latest on its implementation—and the implications for biopharma.

Ed Schoonveld

Ed Schoonveld

In the US and Europe, there is quite a bit of movement on the market access front. The debate continues regarding the European Commission’s plans to shorten effective patent lives by two years unless a drug is launched in all 27 EU countries within two years of European Medicines Agency (EMA) approval. However, this edition of Value and Access will focus on the evolving Inflation Reduction Act (IRA) implementation in the US.

The March 15 Centers for Medicare & Medicaid Services (CMS) guidance document provided some clarity, but many questions remain. For an update on IRA and a discussion on the elements, I am referring to Sean D. Sullivan, PhD’s overview, alongside some ZS commentary (via Howard Deutsch et al). I will discuss some high-level implications.

The process for identification of the “negotiated” Medicare Part D and later Part B drugs is clear. The penalties for not negotiating are also clear and extravagant. The main questions are how the negotiated price will be set by CMS, and how it will impact pricing and formulary access of competitor drugs.

1. How will the negotiated price be set?

CMS will set a maximum fair price (MFP) for each drug molecule that is on the negotiation list. So far, it is known that the upper limit of MFP is the lower of the current negotiated price (Part D) or average sales price (ASP, Part B), and a percentage of the average manufacturer price (AMP), which ranges from 75% for small molecules between nine and 12 years after FDA approval, to 40% for all drugs beyond 16 years of approval. There is no lower limit, the process is confidential, and the penalties for not accepting CMS demands appear to be excessive. CMS has a lot of flexibility in its approach, as the law only excludes the use of metrics that result in a different valuation for elderly versus younger populations.

The focus seems to be on comparative effectiveness, manufacturer ROI, and potentially international price comparisons. At first glance, comparative effectiveness seems a fair criterion, but the experience in Germany shows that the definition of a comparator can easily be used to stack the cards in favor of lower-cost generics when not giving due consideration to effectiveness across populations, individual patient differences, and tolerability. What will be an accepted way to demonstrate differential value in the later stages of the life cycle, and what will be deemed significant? Will real-world data be accepted?

2. How will price and formulary status of drugs that are competing with the price-controlled drugs be impacted?

When a Medicare Part D plan starts implementing a, for example, 60% discount for drug A as a result of its determined MFP, how will they manage formulary listing for drugs A and competing (newer) drugs B and C that are in the same drug class? Will managed care plans be able to extract significant additional discounts for drugs B and C as the competitive balance has been distorted in favor of the now cheaper drug A? Will plans be tempted and able to force additional rebates for drug A?

Meanwhile, politicians are eager to build on the political IRA success with various partisan and bipartisan initiatives that take IRA a few steps further. As an example, on April 24, Sen. Klobushar proposed to change drug negotiation eligibility to five years after FDA approval and to accelerate the number of drugs up for negotiation. While these new initiatives are unlikely to pass the House, it needs to be a continuing wake-up call to the industry that there is a lot of energy in Congress to further control prescription drug pricing.

  • Implications for biopharma companies: Engage in scenario analysis to guide development choices and commercialization decisions for individual drugs and portfolios.
  • Implications for industry: Step-up communication capabilities and efforts beyond lobbying to politicians. The economics of pharmaceutical development is complex, but we need to agree on securing funding for innovation while ensuring that patients have access to the drugs.

About the Author

Ed Schoonveld is a value and access consultant, and author of The Price of Global Health.

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