Understanding the Impact of Therapeutic Alternative Selection in IRA Negotiations

The IRA mandates that CMS negotiate MFPs for a selection of single-source drugs lacking generic or biosimilar competition. First, CMS will determine the starting point of the initial offer based on therapeutic alternative net prices. Next, CMS will adjust this starting point based on several factors, including value relative to therapeutic alternatives. To prepare negotiation strategies and evidence submission packages, manufacturers must anticipate how CMS will select therapeutic alternatives for comparison by understanding which “in-class” and “out-of-class” therapies may be selected as alternatives—based on clinical guidelines and real-world prescribing dynamics—and how evidence of clinical benefit varies across drugs for a given indication. Understanding these steps and inputs can help manufacturers prepare for a range of possible initial offers and inform counteroffer strategy. Negotiated MFPs will affect not only negotiated products, but also competitor products, as price dynamics ripple through the market.

To better understand the CMS rationale for comparator selection and the respective impact on the way the agency develops initial price offers, a life sciences client sought to catalog all potential therapeutic alternatives with their respective estimated net prices and 30-day wholesale acquisition costs (WAC).

To establish the comparator landscape, we compiled a full list of all Food & Drug Administration (FDA)-approved indications for drugs subject to negotiation, then identified all products approved by the FDA—or recommended by widely recognized compendia or clinical guidelines—for the same indications. We validated and finalized our comparator list by consulting clinical subject matter experts, who also helped us identify generics not on our original list. Next, for every comparator, we analyzed proprietary rebate data to infer quarterly net pricing. We then investigated dosing and prescribing practices, validated by clinical practitioners and package insert information, to build a 30-day WAC pricing calculator that enables users to adjust comparator weights across indications to reflect changing assumptions about utilization mix. The calculator allows the client to understand various scenarios for both initial offer and counteroffer strategy based on the role of the market basket and utilization that CMS includes in its calculations.

The calculator tool allowed the client to understand the significant flexibility that CMS has in selecting appropriate therapeutic alternatives across different indications for selected drugs. As a result, the client was able to identify concerns with CMS’s process and develop an advocacy strategy related to appropriate therapeutic alternative selections. The calculator also enabled the client to anticipate the range of possible comparators for each product that CMS might consider when preparing its MFP benchmarks for each negotiated product.