IRA “Negotiations” Price Release: No Big Surprises, But Is the Industry Ready Today and for the Future?

Published August 16, 2024

Yesterday, CMS released the results of the first round of “negotiated” prices for the Inflation Reduction Act (IRA).¹

The IRA is a historical landmark legislation for the pharmaceutical industry, and the results from these “negotiations” involving 10 of the top Medicare Part D drugs in terms of spend were eagerly awaited by many.

Immediately, both the Biden Administration and the Harris-Walz campaign commented on the public savings that these “negotiations” have generated, claiming this as a “beginning”.

No Big Surprises

Medicare’s price reduction release did not yield big surprises, despite the claims of large savings by CMS and the current and potentially future administrations. The Exhibits below highlight some of the key elements including:

• Large apparent discounts on some brands e.g. up to 79% off WAC on Januvia
• However, these discounts are incremental:
  • vs. the minimum discount¹ starting points set by the IRA (e.g. 60% for Januvia)
  • vs. existing net prices since most of the products were already heavily rebated, especially in diabetes
• There is a key focus of discounting on diabetes while oncology seems to remain “protected” in this first round
  • Limited net price reduction for Imbruvica, however starting from limited pre-existing rebates
• Claims of “big savings” are clearly political
  • Both the Biden administration and the Harris-Walz campaign are already trying to leverage these results and promising more
  • Notably, in addition to the large size of the list price cuts (38%-79%), a key focus has been on the reduction of U.S. consumer out-of-pocket costs by $1.5 billion

What does this mean?

We shouldn’t conclude that future CMS “negotiations” are going to see marginal price reductions, and that the impact on Medicare business and overall pharma profitability remains limited.

• This is just the first round of “negotiations”
  • As the experience of the infant formula business showed, what seemed initially like a boon to the industry, became overtime, a negative price spiral²
• Price reductions appear marginal in large part, because substantial rebates were already provided for the 10 products on this year’s list
• However, as negotiations move to more oncology and medical benefit products there is a risk that:
  • The price reductions become significantly more biting and,
  • CMS’ “appetite” grows over time if left unchecked (especially in light of political pressures from both sides of the aisle)
• Additionally, the level of spillover risk to the negotiated drugs’ competitors and the commercial book of business remain key uncertainties

What should your pharma company do/consider?

Today’s price release was just the tip of the CMS “negotiations” iceberg and key action items for the industry remain:

• Seek to mitigate IRA impact for products/categories at risk and set expectations that future price impact will be greater.
  • Going forward, this primarily includes oncology and medical products, i.e. TAs with historically limited rebates, particularly on the payer side, and high COGS (and thus more limited ability to accommodate large price reductions)
  • In this round, there was only one oncology product, Imbruvica. While the incremental impact of these first “negotiations” was very limited (incremental 3% rebate vs. 35% minimum set by the IRA), there is a risk of a more aggressive stance by CMS going forward, especially when the future potential negotiation savings will primarily come from oncology and other medical benefit products
• Proactively track and protect against the competitive spillover risk in TAs with historically high payer management (e.g., cardiovascular and metabolic)
  • In areas like cardiovascular & metabolic diseases, a spillover risk to competing brands is greater even if the magnitude of additional discounts are lower due to payer comfort and ability in managing these classes
• Engage differently with non-pharma stakeholders best positioned to mitigate IRA effects
  • Some external organizations (e.g., medical societies such as ASCO, patient advocacy organizations, etc.) have a key role to play in educating their stakeholders and CMS on the implications & trade-offs of future IRA implementation and key value considerations

In the meantime, the new price reductions are an opportunity for pharma to claim and celebrate its rightful credit for continuing to ease some of the economic burden in high spend areas while preparing to minimize the impact of more “savings” in the future.

Exhibit 1: What do we know?

Abbreviations: AS: Ankylosing Spondylitis; CAD: Coronary Artery Disease; CLL: Chronic Lymphocytic Leukemia; CD: Crohn’s Disease; CV: Cardiovascular; DVT: Deep Vein Thrombosis;  JIA: Juvenile Idiopathic Arthritis; NVAF: Nonvalvular Atrial Fibrillation; PAD; Peripheral Artery Disease; PsA: Psoriatic Arthritis; PE: Pulmonary Embolism; PsO: Plaque Psoriasis; RA: Rheumatoid Arthritis; SLL: Small Lymphocytic Leukemia; UC: Ulcerative Colitis; VTE: Venous Thromboembolism

A: Maximum Fair Price

± CY 2023, if 2026 discounts applied (list to net)

¥ Covered Prescription Costs

Current Rebates: Very High: >60%; High = 40-60%; Moderate: 25-40%, Low: <25%; Source: Trinity Expertise/Research; The Commonwealth Fund

Exhibit 2: Who are the winners?

*Risk of longer-term “loss” for pharma in oncology

1 Maximum Fair Price, sets the ceiling of the lower of two prices: a fixed, 25–60 percent discount off the pre-rebate “non-Federal Average Manufacturer Price” (non-FAMP), with the oldest drugs getting the largest price reduction; or the net price already negotiated by Medicare Part D plan sponsors after rebates: See https://www.cms.gov/files/document/fact-sheet-negotiated-prices-initial-price-applicability-year-2026.pdf

2 Source: From the Mouths of Babes (pharmexec.com)