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Drug Pricing Policies Under Inflation Reduction Act Raise Operational Questions

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Summary

Understanding where federal agencies will make key determinations on details of the IRA’s policies will be crucial for stakeholders seeking to shape implementation and prepare for their impact.

Senate Democrats introduced the Inflation Reduction Act (IRA), formerly known as the Build Back Better Act, and the Senate passed the legislation on August 7. The latest version of the bill includes major healthcare policies such as direct Medicare price negotiation for certain products, manufacturer rebates for prescription drug prices that increase faster than inflation, wholesale reform of the Part D benefit design package, and an extension of previously enacted enhancements of Affordable Care Act (ACA) subsidies. The House is expected to act quickly in holding a vote and sending the bill to the President’s desk for his signature. Upon enactment, responsibility will shift from Congress to the executive branch agencies charged with implementing the various policies included in the bill.

While Congress included very explicit policy details in some aspects of the IRA (e.g., the criteria to identify products subject to negotiation), there are many areas where Congress has delegated critical decisions to the Secretary of Health and Human Services (HHS). These policy questions must be answered in the coming months by agencies like the Centers for Medicare & Medicaid Services (CMS). Understanding the complete scope of decisions that will be made through regulation or other administrative means is essential for stakeholders to advocate for priorities and shape the policies’ implementation.

Below are a select set of examples of the decisions that federal agencies will make if the IRA becomes law.

Reforms to the Medicare Part D Benefit Design

  • New Manufacturer Discount Agreements: A new manufacturer discount program will be created to replace the current Coverage Gap Discount Program. As part of this new program, the HHS Secretary is required to establish “procedures to ensure that…the pharmacy or mail order service is reimbursed” for the difference between a drug’s negotiated price and discounted price. This will include guidance related to the timing and reconciliation of the new discount payments between plans and pharmacies to avoid payment delays.
  • “Smoothing” of Beneficiary Out-of-Pocket Costs: In certain circumstances, Part D enrollees will be permitted to pay cost sharing in equally divided amounts throughout the year—a policy often referred to as “out-of-pocket smoothing.” Part D plans will implement most of the requirements related to the new policy. However, CMS may need to issue guidance to address new plan workflows for the temporary floating of the full cost sharing amount and instances of non-payment of monthly enrollee copay amounts.

 

Medicare Negotiation

  • Negotiation Process and Maximum Fair Price (MFP) Determination: The legislative language offers few details on the process and gives the HHS Secretary authority to establish a process for reaching the lowest MFP for each selected drug, but key details related to the specific data the Secretary will request from manufacturers and how HHS will directly engage with manufacturers for negotiation and renegotiation are uncertain.
  • Delayed MFP for Selected Drugs Facing Biosimilar Competition: The IRA empowers the HHS Secretary to delay implementation of an MFP if “there is a high likelihood…that a biosimilar biologic product” of the reference biologic product will come to the market within 2 years. The Secretary must decide if documentation submitted by a biosimilar manufacturer provides “clear and convincing evidence” that the biosimilar will come to market, but the legislation does not define the type of evidence that meets this threshold.
  • Implementation of MFP and Claims Adjudication: For selected Part D drugs, the IRA requires that the MFP replace the Part D “negotiated price” (i.e., the price that plans use to reimburse pharmacies and establish beneficiary cost sharing at the point of sale). Similarly, for selected Part B drugs, the MFP will replace Average Sales Price (ASP) for the purposes of provider reimbursement. HHS may have to establish complex new “chargeback” mechanisms across pharmacy and pharmacy benefit manager workflows in Part D and ensure that provider acquisition costs do not exceed the lower, MFP-based reimbursement after a Part B drug has been administered.

 

Medicare Part D Inflation Rebates

  • Data Publication Requirements and Manufacturer Agreements: The IRA requires manufacturers to pay rebates to Medicare when certain products’ prices increase at a rate faster than inflation. In order to implement this requirement, the HHS Secretary would need to (1) clarify the process related to the publication of baseline Average Manufacturer Price (AMP) and ASP and the methodology to adjust both by inflation, (2) establish agreements with manufacturers in the first year of implementation, (3) define the manufacturer payment process, and (4) create a system for appeals and grievances of calculated payment amounts. Other specific areas would also need to be defined, such as the process for manufacturers to retroactively modify AMP for Part D penalties and how the MFP will be applied to reduce beneficiary coinsurance for Part B penalties.

 

Conclusion

The reforms included in the IRA are the most consequential changes to drug pricing policy in several years—with reforms as complex as those in the ACA and the Medicare Modernization Act. Although the policies themselves are clearly articulated in the legislation, many reforms will require further clarification through the regulatory process or program guidance. Stakeholders will need to understand the many decisions the IRA delegates to the agencies to assess the policies’ full impact on the healthcare market and their businesses, as well as to identify opportunities to engage HHS to shape the details of the bill’s implementation.

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