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

In previous installments, Avalere experts outlined manufacturer and plan considerations for IRA implementation and the importance of long-term strategic planning. This Insight explores IRA dynamics for providers and pharmacies, and how the IRA uniquely impacts each stakeholder.

Provider Considerations

Negotiation of Part B drugs will significantly impact providers. Medicare payments to physicians will decrease as the add-on payment changes from 6% of average sales price (ASP) to 6% of maximum fair price (MFP). The IRA does not explicitly state that MFP should be excluded when calculating ASP, so the ASP for negotiated products may decrease over time depending on how CMS implements the policy. Many commercial and MA plans utilize ASP for reimbursement, along with state Medicaid fee-for-service programs (FFS), so an MFP-driven decrease in ASP could have spillover effects outside of Medicare FFS. The introduction of MFP could also create additional administrative burden for providers associated with billing requirements.

Pharmacy Considerations

Beginning in calendar year 2025, Part D plans will begin offering beneficiaries the opportunity to spread their out-of-pocket (OOP) costs throughout the year through the OOP smoothing program. While CMS has not outlined in detail how smoothing will be implemented, pharmacies will likely play a role in the program, including by educating and enrolling beneficiaries. Additionally, CMS proposed giving manufacturers broad latitude in providing access to a selected drug’s MFP, which may require pharmacies to manage multiple processes across manufacturers of drugs selected for negotiation. This proposal could also lead to future complications, such as pharmacies facing cash flow issues if payment processes are not optimized between the manufacturer, plan, and pharmacy.

Considering that the OOP smoothing program and the $2,000 OOP cap will both begin in 2025, Part D drug adherence is expected to rise. However, many pharmacies currently achieve high adherence measure scores (i.e., proportion of days covered [PDC]) for many measures and compete within a narrow threshold already. An even higher increase in PDC scores may create an even narrower field, likely making it more difficult for many pharmacies to perform well with their pharmacy benefit manager and/or plan contracts. Further, some pharmacies may face further challenges if plans try to mitigate higher Part D liability by adjusting terms for and creating a larger gap between standard and preferred pharmacy networks.

A Changing Healthcare Landscape

This discussion is merely a snapshot of upcoming stakeholder considerations. Ultimately, the IRA will substantially shift the healthcare landscape.  To be a thought leader as key provisions are implemented, stakeholders need to begin planning for the IRA’s implementation. Stakeholders can also look to lessons learned from past major healthcare reforms—such as the passage of the Medicare Modernization Act of 2003 and the Affordable Care Act—to better prepare for long-term IRA strategies.

What Comes Next?

CMS has solicited comments on Part D redesign via Health Plan Management System and will continue to issue guidance surrounding Part D provisions over the coming years. CMS will also pay particular attention to OOP smoothing and MFP effectuation guidance and release guidance on its operationalization and detailing key stakeholders’ duties. The current and upcoming CMS guidance will bring about many complicated questions and stakeholder engagement is critical.

Avalere experts in policy, market access, and evidence and strategy can help you understand what IRA drug pricing provisions and CMS guidance means for your organization and weigh in on key implementation decisions. To better prepare for and shape the changing healthcare landscape in 2023 and beyond, connect with us.