With a few years now into the enactment of the Inflation Reduction Act (IRA), the law continues its transformation of the pharmaceutical market. The IRA directly impacts Medicare drug prices through price negotiations on selected products and in turn transforms 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 informed by the highest-quality data and analytics to keep sponsors oriented amidst these wider landscape changes.
Pharmaceutical market stakeholders should consider two major changes:
The drugs selected for price negotiation represent market or revenue leaders within their respective drug classes. They face considerable changes in pricing, promotion, franchise development and contracting strategies. Manufacturers must adapt to these new dynamics to maintain their market positions and optimize 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. 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 effectively shifts 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.
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 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.
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 favorable 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.
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 analyzing multiple potential future states based on current trends and predictive analytics. The right data paired with expert analysis enables modeling 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:
Provider:
Payer:
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.
The post-IRA market presents a complex and dynamic environment for pharmaceutical companies, and it does not come with a one-size-fits-all strategy. Navigating this evolving landscape requires effective scenario planning fueled by robust, real-time data from both secondary sources and primary market research. With comprehensive data insights, pharmaceutical companies can move proactively rather than reactively, and maintain competitive positioning as the market reshapes.
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To learn more about how Symphony Health, a HealthVerity company, can support you through this reshaping of the healthcare market, contact us.