Navigating the impacts of the Inflation Reduction Act (IRA): Strategic considerations for pharma
The pharmaceutical market is poised for significant changes due to the Inflation Reduction Act (IRA). The IRA will directly impact Medicare drug prices through price negotiations on selected products and transform the broader landscape in which pharmaceutical sponsors and manufacturers operate. Navigating the IRA will differ for selected products compared to their competitors.
In this blog, we outline these differences and highlight the crucial role of accurate, responsive forecasting and scenario planning to keep sponsors oriented amidst these wider landscape changes.
Key points for pharma in the Inflation Reduction Act
While the nuances and ripple effects of the law are still evolving, pharmaceutical market stakeholders should consider two major changes:
- For Medicare part B and part D, mandatory price negotiations for single-source drugs where 9 years for small molecule and 13 years for biologics have passed since FDA approval. As of writing, 10 Part D drugs have already been selected and another 15 are due for selection by February 2025. The price negotiations for this first group are set to complete in August 2024 with announcements in September 2024 and the negotiated prices taking effect in 2026.
- The redesign to Medicare Part D aims to eliminate large out-of-pocket costs for patients and reduce federal government spending for patients with particularly high levels of expenditure in catastrophic phases by shifting costs to health plans and manufacturer discounts.
Considerations for drugs selected for IRA price negotiation
The drugs selected for price negotiation represent market or revenue leaders within their respective drug classes. They will face considerable changes in pricing, promotion, franchise development and contracting strategies. Manufacturers must adapt to these new dynamics to maintain their market positions and optimise their revenues.
Pricing adjustments: Once a drug is selected for negotiation, manufacturers will need to adjust their pricing strategies. Between the selection and the Initial Payment Year (IPAY), manufacturers will set prices with the knowledge that they will need to decrease prices in the Medicare market within about a year. While the question of just how much the IRA’s Maximum Fair Price (MFP) will threaten product revenues is dependent on numerous factors, many of which are outside of the law’s direct purview (e.g., level of existing rebates), pharma companies will need to plan for the implications of the impending price reductions.
Promotion strategy: By virtue of being selected, such products bear the label of being IRA negotiated. Brands should consider how this label could potentially impact promotion strategies accounting for changes in perception in the market and the opportunities this presents to develop novel promotion. In the wider market, the IRA will also effectively shift current promotional practices towards a front-loaded approach. This shift will be especially relevant for products in the initial rounds of drug price negotiations, requiring manufacturers to reconsider how they promote these drugs without a clear blueprint for adjusted strategies.
Pricing across indications: Under the IRA, drugs sharing the same active ingredient will be grouped together across various forms and administration routes. Combination products will be treated separately. Aggregating products in this manner increases the total drug spend under Medicare and in turn the likelihood a product with multiple indications spanning multiple forms is selected. Drugs treating multiple diseases through targeted forms and administration routes need to consider how a single price will impact their value in each market. Competitors need to be mindful that a competitor’s product could still be selected even if the bulk of the spend occurs in a different indication.
Contracting strategy: The introduction of the MFP will result in a more modest difference for net prices than it will for list prices. However, manufacturers of selected drugs will now operate from a lower pricing baseline, impacting their ability to offer rebates. Although the IRA ensures formulary placement, it does not guarantee placement in a preferred tier, adding another layer of complexity to contracting strategies.
Considerations for competitors of IRA-selected drugs
Pharma companies with drugs in the same group as the selected drugs will need to take a carefully considered approach to navigating the changes created by the IRA and the Medicare Part D reform. Unlike their selected competitors, non-selected drugs in the same class as those selected for price negotiation are not directly forced to make price reductions. However, the change in the market will likely require non-selected pharma to adapt their strategies as the selected product will become the de facto market price and variations will need to be defended. From a pricing perspective, there is a possibility that the market will respond similarly to the way generics and biosimilars effected pricing.
It will be important for competitors to differentiate themselves. Differentiation can justify a different pricing structure, mitigate price erosion and establish market value separate from the selected products. Pharma can leverage this differentiation to sustain profitability and market share. It could also play into negotiating favourable formulary placements, ensuring that non-selected products remain accessible and preferred by payers and providers.
While non-selected products are at an advantage in the ability to leverage larger rebates, revenues might take a greater competitive hit depending on how and where in the Medicare benefit the products are consumed.
How pharma companies move forward will in part depend on how selected and other class competitors choose to react. Pharma with relevant products should proactively increase the degree to which they survey their competitors to track how things progress and facilitate strategic agility. Conducting granular stakeholder research will help anticipate customer responses and inform adaptations to pricing and contracting strategies.
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Scenario planning for post-IRA market positioning
Robust, real-time data will be pivotal in informing strategic pricing decisions. It will be important for pharma to conduct detailed scenario planning and situational analysis to better understand and forecast the impacts of the IRA and Medicare Part D analytics.
Data-driven scenario planning involves creating and analysing multiple potential future states based on current trends and predictive analytics. The right data paired with expert analysis enables modelling to forecast market changes and uncover risks and opportunities to inform rapid decision-making.
Pharma should consider the roles of each of the key stakeholders to understand potential shifts in how each will respond: patient, provider and payer. For example:
Patient:
- How could formulary shifts impact patient access and existing treatment?
- Will formulary changes result in potential increase in abandonment?
Will decreases in out-of-pocket costs result in decreased abandonment? - Will outcomes be positively or negatively impacted?
Provider:
- What is the potential impact on average sales price (ASP) as it relates to buy/bill product margin? (However, this would not apply to all selected drugs. For example, it is an important consideration for Enbrel and Stelara in this first round of price adjustments more than the other selected drugs.)
- How could potential shifts in formulary impact treatment patterns for Medicare population and introduce additional administrative burden?
Payer:
- How will payers respond to shifting drug prices?
- Will there be any potential shifts in formulary?
- How will pressures on pharmacy benefits managers (PBM) change rebates?
- How will the maximum fair price in Part B impact ASP?
Answering the wide range of questions required to understand the individual stakeholder impacts requires comprehensive, up to date data. The individual components will then require a collective analysis for a holistic view of how they may impact each other, influence the wider market, and how pharma should respond.
Data: Paving the way through the IRA
The post-IRA market will present a complex and dynamic environment for pharmaceutical companies that does not come with a clear, one-size-fits-all strategy. Navigating the challenges of this evolving landscape will require effective scenario planning fuelled by robust, real-time data from secondary data and primary market research that is essential for strategic positioning. By leveraging comprehensive data insights, pharmaceutical companies can navigate these changes proactively, ensuring continued success and competitiveness in the evolving landscape.
ICON Symphony Health’s Integrated Dataverse (IDV®) is one of the largest integrated repositories of healthcare data which includes more than 307m active patients, 1.98m prescribers and 18,000 health plans to provide the most robust single source of healthcare intelligence. Access to this amount of data, coupled with ICON’s in-depth experience conducting surveys and interviews, provides pharma with the data they need when they need it.
To learn more about how ICON’s healthcare intelligence can support you through this radical reshaping of the healthcare market, contact us.