Should Competitors of Negotiated Drugs Review Their Market Strategies?

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Manufacturers of therapeutic alternatives to negotiation-eligible drugs should re-examine their commercialization strategies in response to market dynamics.

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

In the second part of this two-part installment, Avalere experts discuss seven key questions for manufacturers of products that are competitors to drugs eligible for Medicare price negotiation. The first installment focused on key value and evidence strategy considerations for competitor manufacturers.

The introduction of a lower maximum fair price (MFP) of a negotiated product in the same drug class or therapeutic area will require strategic response from manufacturers of competitor products. The IRA lowers the price of negotiated drugs but in return requires coverage on all Part D plan formularies. Additionally, by the time the Centers for Medicare and Medicaid Services (CMS) releases MFPs for drugs that are negotiated in year 1, other aspects of the IRA (e.g., Part D Redesign) will have already been implemented. These other changes will increase financial pressure on plans, impacting how those payers consider negotiated vs. non-negotiated drugs in a therapeutic class and area.

It is important that manufacturers assess the risk that negotiated drugs pose to their competitor products and determine necessary strategies to prepare. To understand the impact of a negotiated MFP on a therapeutic alternative and how business strategies should evolve, manufacturers of competitor products should consider the following seven questions (Figure 1).

Figure 1. Key Questions to Assess the Impact of Negotiated Drugs on Competitors
Figure 1. Key Questions to Assess the Impact of Negotiated Drugs on Competitors

1. How will Part D plans change coverage and utilization management approaches?

Manufacturers should consider if and how coverage dynamics and utilization management approaches will shift for their own product in response to the negotiated drug’s lower, published MFP. Critical insights to the following, among others, will inform access strategy:

  1. Will plans continue to cover the competitor drug in addition to the negotiated drug?
  2. How will utilization management techniques such as prior authorization, step therapy, and others evolve across the therapeutic market?
  3. Will Medicare Advantage Prescription Drug plans increase cross-benefit management, where physician- and self-administered products are both available?

2. What is the impact on patient access and affordability?

Manufacturers should explore how a lower MFP in their drug class or therapeutic area will impact patient access and affordability of their product. This complex space requires additional effort to understand considerations for competitor drugs relative to negotiated drugs including answers to the following, among others:

  1. Will this affect certain drugs (e.g., specialty) more than others?
  2. Will provider decisions change as a result?
  3. If so, how will prescribing behavior changes impact patient access of competitor drugs downstream as a result of changes in affordability?

3. What are the impacts to other government programs?

Manufacturers should investigate how a negotiated MFP and strategic responses in Medicare will affect competitor product coverage, pricing, and access in other government programs (e.g., Medicaid, 340B). It can also be helpful for competitors to understand dynamics impacting negotiated drugs to understand implications to theirs. Some key questions to consider include:

  1. How will the retrospective application of CMS’s MFP interact with 340B reimbursement processes? How will the MFP for negotiated drugs be operationalized in 340B in combination with other IRA policies (e.g., inflation rebates)?
  2. If coverage is required in Medicaid, what are the likely changes to states’ Preferred Drug Lists? How will the negotiated Medicare MFP flow into Medicaid Best Price? How do pricing and contracting strategies for Medicare impact economics in Medicaid?
  3. How will these changes impact access to a competitor drug versus the negotiated product?

4. What are the spillover effects in the commercial market?

Manufacturers should examine how a lower MFP in Medicare will impact competitor products’ contracting, coverage, utilization management, pricing, and overall dynamics in the commercial market, especially in therapeutic areas where there is greater flexibility in utilization management and coverage decisions than in Medicare. How will plans review and adjust management of drug classes and therapeutic areas in response to shifting economic dynamics? Competitor manufacturers should consider strategies to mitigate risk associated with spillover into the commercial market.

5. How should strategies for inline products shift?

Manufacturers should re-evaluate commercialization, contracting, and rebate strategies for existing products to mitigate risk associated with a negotiated product in the same therapeutic class or area. Plans will continue to seek rebates given their increased liability under the IRA, so manufacturers should ensure effective rebate tactics are in place to maintain product access.

6. How should strategies for pipeline products shift?

Manufacturers should also determine how their pipeline strategies should adapt in response to IRA negotiation of drugs in a specific therapeutic area. Manufacturers should be aware of the risk of negotiation in drug classes and therapeutic areas for drugs on the market and drugs in development, even if their own drugs are unlikely to be subject to negotiation. If other drugs in the class are likely to be negotiated, manufacturers may consider shifting investment and pipeline strategies to mitigate the associated risks.

7. How should strategies for sequencing indications shift?

Manufacturers for both inline and pipeline products must consider how negotiation impacts strategic indication expansion and sequence (i.e., order) decisions, for example:

  1. Should manufacturers adjust indication decisions towards or away from a therapeutic market that is negotiated?
  2. Are there opportunities to focus on subpopulations within indications that are negotiated?
  3. Traditionally, expansion of indications can serve as a strategy for negotiation of formulary position. What about when one indication is negotiated for a competitor?

These seven considerations can serve as a starting point for manufacturers assessing necessary changes to mitigate risk and leverage opportunities from the negotiation of competitors. The Medicare drug price negotiation program is evolving, and manufacturer business strategies will need to change in response, both for negotiated products and their potential therapeutic alternatives.

Avalere experts in drug pricing and commercialization, evidence strategy and generation, and government markets and plan design can help you understand what IRA provisions mean 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.

Webinar | A Closer Look at Patient Support On June 6 at 2 PM ET, Avalere experts will explore how potential implications of the Inflation Reduction Act (IRA)’s out-of-pocket cap, in addition to other key regulatory and policy activities shaping benefit design and patient cost-share (e.g., EHB), could impact patient commercial and foundation assistance. Learn More
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