Payers, Drug Manufacturers Can Expect More Liability Under New IRA Drug Pricing Policies

Payers and drug manufacturers will be taking on more financial liability under the new drug pricing policies going into effect as part of the Inflation Reduction Act (IRA), according to panelists at the 2023 Asembia Specialty Pharmacy Summit.

The conference took place in Las Vegas, Nevada, from April 30 to May 4.

The session entitled “Key Considerations to Prepare for Implementation of the IRA’s Drug Pricing Policies” began with the moderator, Matt Kazan, managing director at Avalere, giving an overview of the main changes that will come with the IRA’s new policies:

• The ability for Medicare to negotiate with drug companies on pricing
• The addition of drug rebates to combat inflation
• A redesign of Medicare Part D benefits

Regarding negotiations, Medicare will only be able to negotiate prices for certain medications that must fit specific criteria, and Medicare will have to take several steps to come to a maximum fair price for beneficiaries. The number of drugs for which Medicare will be able to negotiate prices will increase annually starting in 2026.

CMS will base their choices for drug negotiations on multiple factors, such as time on market, availability of generic or biosimilar competitors, and whether they meet the agency’s exclusions criteria (orphan drugs, plasma drugs, developed by a small manufacturer). Drugs that qualify for negotiation will then be ranked using Medicare claims data. The first round of chosen drugs is projected to be announced on September 1, 2023.

Kelsey Lang, principal at Avalere, explained that CMS clarified that it will aggregate spending for drugs that have the same active ingredient, regardless of time on market.

“If you have a product that has multiple formulations, and one…has been on the market for 7 years and the other has not, both…will be merged for purposes of Medicare negotiation. The same is true for a product that has multiple indications. The flip side of this is that they are also aggregating for purposes of making the drug ineligible due to generic or biosimilar competition. So, if any one of those products has a generic [or biosimilar] on the market, that will exempt all formulations and indications…from the negotiation process.”

Inflation-based rebates have been in effect for Part B plans since January 2023 and will be expanded for Part D plans in October 2023. Omar Hafez, managing director at Avalere, argued that although the criteria used to determine rebates will differ between Part B and Part D plans, one of the unintended consequences of this action could be that drug manufacturers may launch their products at higher prices to make up for what they will pay in rebates.

The Medicare Part D redesign will include an $2000 out-of-pocket cap for beneficiaries beginning in 2025, changes for manufacturer liability, and a shifting of financial liability from the government to Medicare plans.

Lang said that manufacturer liability will be dependent on a company’s portfolio, such as whether they make specialty medicines. Additionally, some plans have tools that can help manage liability, which can affect how flexible they can be with adapting to the new rules.

Hafez argued that although payers and manufacturers will both take on more liability, manufacturers will experience this effect from multiple angles.

“I think that the plan certainly is going to be one of the big stakeholders that will have to recover a lot from this, but the manufacturer is going to have a double whammy. They have higher liability, but now the payer is likely to come after them with higher rebates. And when you think about how the pricing, contracting, and, just generally speaking, access strategies are going to be over time, those are all things that are going to have to be reevaluated,” Hafez said.

The panelists stressed that stakeholders must keep in mind that the IRA could impact the value of biosimilars as well as the pharmacy’s role in smoothing programs, saying that CMS will need to define characteristics of which patients will benefit from these policies.