The Inflation Reduction Act (IRA) is bringing landmark policy changes to the healthcare industry, raising important questions about pipeline strategy, launch prices, and negotiation. In this series, the IRA Question of the Week, Avalere answers the pressing questions shaping healthcare stakeholders’ strategic decision-making as the IRA is implemented.

In this installment, Avalere experts discuss biopharmaceutical manufacturers’ revised commercial strategies in light of the IRA and the Enhancing Oncology Model (EOM), both of which are increasing pressure on manufacturers to drive down costs and increase focus on improving quality.

This article was adapted from interviews with Avalere experts originally published by Fishawack Health.

A New Alternative Payment Model

The EOM is a voluntary demonstration led by the Centers for Medicare and Medicaid Services Innovation Center (CMMI). The 5-year model, which began on July 1, 2023, is the newest oncology-specific alternative payment and will focus on seven cancer types: breast cancer, small intestine/colorectal cancer, lung cancer, prostate cancer, lymphoma, multiple myeloma, and chronic leukemia. The EOM builds on the structure and learnings of the Oncology Care Model (OCM), with an increased focus on managing provider risk, promoting patient-centric care, and addressing health disparities. The EOM is designed to maintain or improve quality and reduce costs, with participating providers taking on financial and performance accountability, measured in 6-month episodes of care.

The IRA’s Impact on Oncology Products and the EOM

Part D redesign and Medicare drug price negotiation are expected to put pressure on manufacturers’ market share and rebating due to the potential for narrower formularies, increased utilization management by plans, and increased net plan liability.

Drugs (including oncology drugs) selected for negotiation will be subject to a maximum fair price (MFP). Both drugs on the market and additional indications under development will be eligible for negotiation. This will impact how product launches are sequenced, requiring manufacturers to reexamine evidence generation and value assessment. Manufacturers will seek to increase the MFP by ensuring they generate the best evidence. This will require companies to review clinical trial design and strategy and to develop a deeper understanding of the competitive dynamics of the drugs within the class selected for negotiation.

In oncology and other therapeutic areas, the IRA will shape clinical competition, which is reflected in the price. Clinical trials that compare pipeline products to standards of care will simplify the methods for comparisons that Center for Medicare & Medicaid Services (CMS) documents, clinical guidelines, and other publications make when evaluating new products.

Part D redesign will impact the EOM beginning in 2025, although CMMI has not clarified how it will address this overlap. Starting that year, Medicare liability for Part D drugs costs will decrease from 80% to 20%. In contrast, the government’s share of cost for drugs covered under Medicare Part B will remain 80%. Because the EOM only counts payments made by the Medicare program toward the total cost of care calculation, this may incentivize the use of Part D drugs over Part B products.

In 2026, Medicare negotiation of Part D drugs will go into effect. If two Part D oncology products are clinically equivalent and one drug has a lower price after negotiation, EOM participants may choose the negotiated product to limit the impact on the total cost of care.

CMS is expected to clarify these Part D provisions closer to the performance period impacted, as it has done for the other IRA provisions that overlap with the EOM, including Medicare payment for certain biosimilar products and Medicare payment increases due to the Part B inflation penalty.

Demonstrating Value Important for Manufacturers

The EOM and IRA were not designed together, but neither are they happening in isolation. Manufacturers of oncology products can mitigate the potential impact on utilization by ensuring that their commercialization strategies account for EOM incentives and tell a clear value story.

For example, EOM participants aim to achieve performance-based payments by managing the patient’s total cost of care and must reduce total Medicare expenditures by 3–4%, relative to a benchmark amount. Avalere analysis found that drug spending accounts for 50% or more of episode expenditures in the EOM baseline period, so providers will likely focus on ways to manage drug cost in the episode. If two products are clinically equivalent, the EOM framework incentivizes the use of the lower-cost option. However, the provider will first and foremost choose the best drug for the patient, so manufacturers that can clearly communicate product value are more likely to overcome this cost hurdle. This further underscores the importance of manufacturers recognizing the impact that EOM participants will have on the future of value-based oncology care. While EOM participation is limited, manufacturers must not overlook the importance of the 44 participants in the model and the impact EOM lessons learned will have on the future of value-based oncology care.

Aligning a product’s value story with providers’ approaches will broaden manufacturers’ focus past the EOM and IRA to consider the business of oncology. Oncology practices navigating complex payment models must continue delivering high-quality care to patients. A successful evidence generation strategy would show practices how a manufacturer’s product fits into their wider economic picture and accounts for not only the IRA and the EOM but also net cost recovery. This will require manufacturers to take a broader perspective to understand the total cost of care, including how care is provided across the patient journey in areas such as surgery or radiotherapy.

Manufacturers who approach the evidence-generation strategy early in the product life cycle and generate clear and specific data will be more successful in achieving the highest reimbursement possible for the largest number of users. Companies that evaluate the strength of competitors’ clinical evidence against their own and are prepared to make challenging decisions based on evidence and the markets will be better equipped to develop a compelling value story.

Dive Deeper

Avalere has deep expertise in evidence generation and strategy, drug pricing, and EOM, OCM, and other alternative payment model designs. To learn more about how Avalere can support you in understanding implications of IRA implementation and EOM design and payment methodology, connect with us.