Inflation Reduction Act (IRA): ISPOR Key Takeaways

Published July 10, 2023

While attending the ISPOR US 2023 conference in Boston this year, Trinity team members had the opportunity to connect with industry colleagues, present original research, and participate in research panels and discussions regarding key industry trends. One top of mind industry topic for many attendees and presenters was the recent enactment of the 2022 Inflation Reduction Act (IRA). Throughout the conference, several key health policy implications stemming from the IRA for the biopharma industry were explored. 

Long-term Pricing Pressure for Pipeline and Existing Therapies in the U.S. 

The introduction of mandatory minimum-discount negotiations through the IRA’s Medicare Drug Price Negotiation Program is expected to curb long-term revenue opportunity for novel therapies. Due to the law’s inclusion of minimum discount rates of at least 25%, the program essentially serves as a mandatory discount, despite allowing for up to three negotiation meetings between manufacturers and CMS during the process. For therapies posed to have limited long-term competition, the mandatory maximum fair price (MFP) discount rate of at least 25% will significantly dampen revenue potential. 

One heavily discussed implication of this is that manufacturers may adjust indication sequencing strategies for the U.S. In ex-U.S. markets manufacturers will likely continue to prioritize launching in and expanding early to indications with the highest price potential due to price erosion that accompanies each indication expansion. However, in the U.S. with new IRA MFP rules, manufacturers are incentivized to maximize revenue generation prior to MFP eligibility through launch indication and early expansion sequence. One effect from this is that manufacturers may be less likely to pursue proof of concept indications with smaller, high unmet need populations in the U.S. Additionally, the IRA’s orphan disease exemption for negotiations is lost if a therapy pursues more than one indication, which will likely discourage manufacturers from pursuing multiple orphan indications in the U.S. unless sufficient revenue can be generated. Ultimately both effects have the potential to reduce innovation in rare diseases.   

Unexpectedly, the impact of the negotiation program might be limited for therapies in crowded landscapes that are expected to have strong long-term competition and therefore a quickly evolving SoC. MFP eligibility rules require that small molecule therapies be on the market for at least 9 years and biologics at least 13 years prior to being eligible for negotiated prices. Therapies in indications with an evolving SoC will likely not be positioned to earn a substantial portion of their revenue in this later stage 9 / 13+ year phase regardless of the IRA and thus could be more insulated from its effects. Additionally, due to the limited timeline to maximize revenue that the negotiation eligibility timeline introduces, indications with larger patient populations may also be insulated from the effects of the IRA. Manufacturers may adjust their sequencing strategy to launch or expand early to large indications if the patient volume is sufficient to drive revenue growth.  

The Role of CMS within the Global Biopharma Landscape  

New IRA rules including the creation of the Medicare Prescription Drug Inflation Rebate Program (currently in effect), $2K OOP spending cap for Medicare Part D beneficiaries (in effect 2025) and Medicare Drug Price Negotiation Program (product selection in 2024, negotiated prices in effect in 2026) have begun to impact the biopharma landscape. The main reason that the IRA increases the importance of CMS within the global biopharma landscape is that new negotiated prices have the potential to exert strong price pressure on therapies. Since the creation of CMS, legislators have struggled to determine the role that cost should have in public coverage of healthcare, and the IRA appears to be one attempt to answer that question for the public by lowering the price of select therapies through negotiations.  

One key question prominently discussed at ISPOR was how CMS will determine the required discounts for therapies selected to go through the MFP negotiation process. While the law lists 9 factors (R&D costs, current unit costs, prior Federal funding, FDA approvals, revenue and sales data, therapeutic alternatives, prescribing information, comparative effectiveness, and unmet need) that CMS should consider, there is currently no guidance for how they should be utilized specifically to determine the MFP. Stakeholders from the industry, ICER, FDA and even CMS discussed potential decision-making considerations in depth, exploring many hypotheticals.  

Stakeholders within the industry are especially interested to see how CMS will consider comparative effectiveness when determining MFP rates. While comparative effectiveness is listed in the law as one of the factors for CMS to consider, there are no specifics about how this should be calculated or how the output should be factored into decision-making. Due to preexisting health policy (Section 1183 of the Social Security Act), CMS is not allowed to consider QALYs, so health economists and other interested parties will closely follow any updates about how CMS plans to carry out this analysis, including how they will select appropriate comparators for negotiated therapies (i.e., selecting lowest price vs. market share or an alternative method). 

The biopharma landscape will look to CMS to see how it determines the level of required discounts for MFPs, with manufacturers likely adapting their global strategy in response. On July 3, CMS published a revised guidance regarding the Medicare Drug Price Negotiation Program, which contains additional details about how the program will be implemented. The Trinity team plans to follow up in a separate post with additional information about the contents of this guidance and its potential impact on the biopharma industry.  

Increased Importance of Manufacturer Value Work and Evidence Generation  

The ultimate takeaway from IRA discussions at ISPOR was the need for manufacturers to invest in value development and evidence generation. Manufacturers with products selected for the IRA’s MFP program will be required to submit evidence about their therapy’s use, costs and indication landscape, necessitating the creation of meaningful evidence packages demonstrating the product’s value clearly to CMS. While it is unclear exactly how CMS will determine the required MFP discounts, the IRA instructs CMS to consider submitted data and potentially assign lower discounts to therapies demonstrating their value through the 9 defined factors.  

This process has the potential to heighten the industry’s awareness of the importance of real-world evidence (RWE), which can be applied to help illustrate several MFP factors, including unmet needs, alternative treatments and comparative effectiveness. Experts at ISPOR emphasized that the threshold for evidence quality will likely be higher at the time of MFP negotiation compared to launch due to the time therapies will have been on the market (i.e., 7 or 11 year minimum at time of negotiation). Cohesive and up-to-date maintenance of brand value across a product’s life cycle as well as an increased focus on relevant evidence generation related to the 9 MFP factors could help support a positive negotiation.  

Authors: Grace Mock, Ismail Ismailoglu, Max Hunt, Ellie Goldman