The Inflation Reduction Act (IRA) is bringing landmark policy changes to the healthcare industry, raising important questions about drug pricing, patient impacts, and reimbursement. In the IRA Question of the Week series, Avalere will be answering the pressing questions shaping healthcare stakeholders’ strategic decision making as the law is implemented.

In this installment, Avalere experts discuss the information that the Centers for Medicare & Medicaid Services (CMS) will consider in Medicare drug price negotiations, and how manufacturers can shape their evidence strategy accordingly. CMS will announce the 10 Part D drugs selected for negotiation by September 1. Manufacturers of those drugs will have until October 2 to submit data that will inform negotiations of each drug’s maximum fair price (MFP) for the initial price applicability year (IPAY) 2026. Given this rapid timeline, manufacturers of drugs likely to be selected for negotiation should prepare their evidence strategies now.

Rigorous Data Requirements

The IRA outlines several pieces of information that CMS will use to determine a product’s MFP. During negotiation, the agency will require manufacturers to provide information on:

• Research and development (R&D) costs and the extent that they have been recouped
• Current unit costs of production and distribution
• Prior federal funding for discovery and development
• Market data and revenue and sales volume data for the drug
• Extent to which the drug represents a therapeutic advancement compared to existing therapeutic alternatives and the costs of such existing therapeutic alternatives
• Food & Drug Administration prescribing instructions
• Comparative effectiveness data, with a focus on specific populations, such as individuals with disabilities or terminal illnesses, the elderly, and children
• Extent to which the drug and its therapeutic alternatives address unmet medical needs for a condition for which treatment or diagnosis is not addressed adequately by available therapy

In anticipation of IPAY 2026, CMS issued initial guidance clarifying manufacturers’ responsibilities for data submission. The guidance noted that primary manufacturers—those who hold the New Drug Application or Biologics License Application for the selected drug—are responsible for submitting manufacturer-specific data, but all stakeholders are permitted to submit “evidence about therapeutic alternatives” for selected drugs. To evaluate this evidence, CMS will consider study design, credibility, and relevance, with particular attention on data related to individuals with qualifying disabilities, older adults, and individuals with end-stage renal disease.

On March 23, CMS released the Negotiation Data Elements Information Collection Request (ICR), which details manufacturer-specific data elements to be considered during MFP negotiation and the format in which CMS will collect the data. In addition to much of the information detailed above, CMS will require primary manufacturers to submit data on:

• Different dosage forms and strengths of the selected drug
• Nonfederal average manufacturer price
• Patents, exclusivities, and approvals
• Total acquisition cost, wholesale acquisition cost, Medicaid best price, 340B negotiated and ceiling prices, the price paid by the Big Four federal agencies (Departments of Defense and of Veterans Affairs, Public Health Service, and Coast Guard), and the commercial average net unit price

Primary manufacturers must submit nearly all the data outlined for use in the negotiation process, including data elements that are already available to CMS through government data sets and public sources. Primary manufacturers must also collect and submit data from any secondary manufacturers.

Manufacturers face high penalties for late data submissions or noncompliance. CMS will impose a civil monetary penalty of $1 million for each day that a manufacturer does not submit data pursuant to the negotiation agreement and to the ICR.

Recalibrating Evidence Strategies

Manufacturers will need to evaluate—and likely adjust—their pipeline strategies to incorporate CMS’s negotiation evidence requirements. The changing evidence burdens will impact how life sciences companies approach their investment strategies, particularly those related to R&D costs and recoupment (including limitation of failures to the active moiety). Scenario analyses will inform early-stage portfolio decisions related to asset mix, indications, therapeutic area targets, formulation, and route of administration. Factoring negotiation requirements into early clinical development may allow manufacturers to optimize their evidence generation and negotiation preparation. For example, manufacturers should consider conducting a robust analysis of the Medicare population and strive to further incorporate it into clinical trials, as CMS will prioritize the Medicare population during negotiation.

Sponsors will need to contemplate which products in early development are likely to be eligible for negotiation, and then evaluate the trial design and overall evidence development strategy accordingly. For products in pre-launch, manufacturers should consider how the launch price accounts for a shorter lifecycle, reference pricing, potential commercial spillovers, and other factors.

For in-line products, manufacturers have the opportunity to fully evaluate both clinical-trial and real-world evidence that has been collected over the life of the product. Assessing any potential gaps in the high-priority categories CMS has provided will allow manufacturers to understand the current state of their evidence package and to fill those gaps by conducting additional studies. Companies may also reform their business strategies through a greater understanding of the competitive landscape and a thorough evaluation of the asset’s evidentiary mix.

IRA: Inflation Reduction Act; LOE: Loss of Exclusivity; ROI: Return on Investment

Next Steps

Given the short timeframe for and procedural complexity of data submission, manufacturers of drugs likely to be selected for negotiation in IPAY 2026 should consider initiating the data-collection process and preparing submissions before official selection. Life sciences firms with products earlier in the lifecycle have an opportunity to incorporate data collection strategies in the product development and pre-launch stages. Manufacturers with in-line products not yet up for negotiation can assess their current evidence generation strategies and pivot as appropriate to ensure that they are well prepared for potential negotiations in the future.

Avalere experts in drug pricing, Medicare, and the IRA can help you understand what Medicare drug price negotiation means for your organization and your industry. To better prepare for and shape the changing healthcare landscape in 2023 and beyond, connect with us.