IRA / Medicare Drug Pricing Timeline

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Drug Price Negotiation Program

Overview

Federal Government will be required to negotiate prices for certain single source high spend drugs covered by Medicare.

Eligibility and Selection Criteria

Federal Government will be required to negotiate prices for certain single source high spend drugs covered by Medicare.

GTN Considerations: Medicaid and 340B

While the MFP only impacts a small number of high-spend drugs selected for negotiation, this will have significant impact for those drugs and could have spillover effects across the market.

• The Maximum Fair Price is included in the Medicaid Best Price (BP)
• Medicaid URA will increase as a new BP will likely be established with the MFP, thereby increasing manufacturer Medicaid exposure.
• As the 340B price is derivative of the Medicaid calculations, 340B price will go down, thereby increasing manufacturer 340B chargeback exposure.
• For products competing with the MFP negotiated product, should manufacturers consider additional Supplemental Rebate Agreement to maintain their position on State Formularies?

GTN Considerations: Payer Contracting

While the MFP only impacts a small number of high-spend drugs selected for negotiation, this will have significant impact for those drugs and could have spillover effects across the market.

• The MFP is published by CMS, so the price point is public and can be leveraged by Commercial Managed Care Plans when negotiating with manufacturers submitting new bids.
• If MFP is established as a new benchmark for negotiation with commercial payers, this will increase PBM rebates and can set Best Price even for manufacturers with drugs competing in a therapeutic class but not selected for MFP.

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Part B Inflation Rebate

Calculation

Benchmarks for Calculation

Example: Part B Inflation Rebate Forecast

Part D Inflation Rebate

Calculations

Benchmarks for Calculations

Example: Part B Inflation Rebate Forecast

GTN Considerations : Additional Margin Pressure

While the inflation rebates for Part B and Part D will have a direct impact on GTN, there are other considerations, such as planning for new product launch timing and launch price.

• Medicare inflation rebates will be in addition to the Price Protection that manufacturers are already paying for drugs contracted with Part D PBMs and payers, and CPI penalties with Medicaid.
• AMP cap removal goes into effect in 2024, compounding the rebate pressure experienced from CPI penalties and inflation rebates.

GTN Considerations: Launch Timing and Pricing

While the inflation rebates for Part B and Part D will have a direct impact on GTN, there are other considerations such as planning for new product launch timing and launch price.

Part B Launch Price and Timing

• For Part B drugs, the Benchmark Payment Rate for drugs approved after 12/1/2020 is the third full quarter after the drug is first marketed.
  • If a company launches mid-quarter, consideration will need to be given to the timing of channel discounts (stocking discounts, e.g.,) prior to third full quarter, as these discounts would increase the impact of future price increases within the inflation rebate calculation.

Part D Launch Price and Timing

• For Part D drugs, Benchmark Payment Amount for drugs approved after 10/1/2021 is the first calendar year after the drug is first marketed.
  • When planning for product launch, if a product is approved and marketed within a calendar year, this could actually delay the requirement to pay inflation rebates.

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Medicare Part D Benefit Redesign

The Four Components of the Medicare Part D Redesign

Overview: Intention is to shift greater portion of drug coststo Part D plans and manufacturers. Coverage gap phase (“donut hole”) will be eliminated. Beginning January 1, 2025, manufacturers will be subject to mandatory discounts on brand drugs in the initial coverage and catastrophic coverage phases.

Coverage Gap Elimination

Eliminates Medicare Part D Coverage Discount Program and Shifts Cost Sharing to Manufacturers and Part D Plans.

Manufacturer Discount

Overview: Starting in 2025, Medicare Part D plans and Manufacturer’s liability is reduced for spending above the out of pocket cap. Discount to be phased in gradually for certain manufacturers with a small share of Part D spending. New manufacturer  discount does not count as enrollee OOP spending.

• Medicare’s share of total costs above the spending cap (“reinsurance”) will decrease from 80% to 20% for brand-name drugs and to 40% for generic drugs.
• Part D plans’ share of costs will increase from 15% to 60% for both brands and generics above the cap.
• Manufacturers will be required to provide a 20% price discount on brand-name drugs and provide a 10% discount on brand-name drugs between the deductible and the annual out-of-pocket spending cap, replacing the 70% price discount in the coverage gap phase under the current benefit design.
• Timeline
  • For 2025, Manufacturer will enter into the agreement no later than March 1, 2024, for agreement to be in effect starting January 1, 2025, until December 31, 2025.
  • For 2026 and subsequent years — Manufacturer will enter into the agreement no later than a calendar quarter or semi-annual deadline to be established by the Secretary.
• Drugs Subject to the Discount
  • NDA or BLA approved and drugs that are covered by Part D prescription drug plan or MA-PD plan.
  • ANDA-approved drugs will not be subject to the discount.
  • Drugs selected (i.e., subject to a maximum price) under Section 1192(c) during a price applicability period will also not be subject to the discount.

Gross-to-net Implications of Part D Benefit Redesign

The new Part D benefit redesign will likely drive up GTN exposure due to the LIS expansion and other potential spillover effects.

• LIS Expansion
  • By expanding the benefits to full eligibility for LIS beneficiaries, these beneficiaries’ Part D drug costs will now be subject to the new manufacturer discount program beginning in 2025.
  • This increase of LIS patients will translate into more liability and margin pressure.
• Lower Out-Of-Pocket Threshold
  • Because the OOP threshold is lowered to $2,000 in 2025, patients will enter the catastrophic phase sooner (in contrast, for 2024 catastrophic begins at $3,250 OOP spend).
  • For high-cost drugs, manufacturers will have to pay 20% for the drug cost in the catastrophic coverage phase through the remainder of the benefit year, as there is no cap on the catastrophic coverage phase.
  • Manufacturers with high-cost drugs, or with patients taking co-morbid high-cost drugs that will push them into the catastrophic coverage phase, could see higher rebates than under the Coverage Gap.
• Patient Adherence
  • By closing the Coverage Gap, the out-of-pocket costs for beneficiaries goes away after $2,000 of spend in the Deductible and Initial phases.
  • This theoretically could improve patient adherence, increasing both the total volume of Medicare Part D utilization and the shift of liability from the Initial Phase to the Catastrophic Phase, thereby increasing manufacturer liability under the Part D Discount Program.
• Spillover effects of IRA
  • Under the Benefit Redesign, Medicare Part D Plans now have to pay 60% of beneficiary drug costs in the 2025 catastrophic phase as opposed to 20% in the 2024 Coverage Gap design.
  • Additionally, as noted above, Beneficiary Part D premium growth will be capped at 6% per year from 2024 – 2030.
  • Part D plans will likely look to manufacturers in the form of increased Part D rebates to compensate for the increased exposure.

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Finance and Commercial functions should begin preparing for IRA implementation today by studying the statute, identifying the key stakeholders responsible for IRA implementation, and identifying the data required to model the GTN impacts.

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