McClellan: IRA Price Negotiations May Have Broader Impact Beyond Drugs on List

Although CMS has released its list of the first drugs to be negotiated under the Inflation Reduction Act (IRA), questions surrounding the process, as well as other provisions of the law, still exist. During a recent webinar, Mark McClellan, M.D., Ph.D., the Robert J. Margolis Professor of Business, Medicine, and Policy, and founding director of the Duke-Margolis Center for Health Policy at Duke University, addressed some of those issues, including the real-world evidence that CMS is looking for and how the redesign of Medicare Part D will play out.

The Sept. 18 webinar was the second in a series presented by Innopiphany on navigating the IRA, following the initial one held June 20.

To kick off the event, moderator Lisa Kennedy, Ph.D., co-founder and chief economist at the life sciences consulting company, asked McClellan, who served as FDA commissioner from 2002 through 2004 and CMS administrator from 2004 through 2006, what he thought of the initial list of 10 drugs to be selected for Medicare price negotiations under the IRA.

“This is going to be an evolutionary process,” he replied. “CMS is under an incredibly tight timeline for implementing this program.” CMS, he noted, created the list based on total gross, not net, spending on Part D drugs, and based on that, “this is a justifiable set of products to include.”

He pointed out that “CMS had talked about including all forms of a particular active ingredient or moiety in a product, not just looking at individual products or individual types of delivery mechanisms or formulations. And I think some people were maybe a little bit surprised by that in the case of the inclusion of diabetes drugs from Novo Nordisk”: Fiasp, Fiasp FlexTouch, Fiasp PenFill, NovoLog, NovoLog FlexPen and NovoLog PenFill (insulin aspart).

Only one cancer drug — Imbruvica (ibrutinib) from the Janssen Pharmaceutical Companies of Johnson & Johnson and AbbVie Inc. — was included on the list, but McClellan said he expects to see more in future negotiations, particularly when Part B drugs are included in negotiations in 2028.

He acknowledged that some people “were a little surprised” that certain drugs expected to have biosimilar competition by the time the negotiated prices are implemented in 2026. “But if you read the statute carefully, what goes on the list are the drugs that don’t have competition now.” That said, opportunities exist for a “significant biosimilar entry” between now and 2026 that could “affect whether or not price negotiation will actually be implemented on the drugs.”

Kennedy noted that some of the drugs to be negotiated “are pretty heavily rebated” and wondered how this could make a difference in terms of net costs.

“CMS has said that as they go forward with implementation, their intent is to reduce the average net prices of the drugs, not just the gross prices,” responded McClellan, adding that he expects more details on this. The net price paid after rebates may be lower than the net price after Medicare negotiations, he explained, and “CMS intends to address that, but we’ll have to see how the details come together. And that should mean some impact, not just on net spending, but on out-of-pocket prices for patients.”

He added that many of the heavily rebated drugs are “in categories where they’re doing the rebates to get volume, market share,” where similar competitors exist, such as in diabetes with the sodium-glucose cotransporter-2 (SGLT2) inhibitors. “If one of these drugs is on the price negotiation list, and there are others that aren’t but that are direct competitors,…that’s going to have an impact on the gross and any net prices for these other drugs as well. And that may end up meaning a broader scale impact of price negotiation than you might think from just looking at the directly involved drugs alone.”

Medicare Part D Redesign Is ‘Important,’ ‘Underappreciated’

The Medicare Part D restructuring — which begins next year and is fully implemented in 2025 — is a “really important and underappreciated” provision of the IRA, maintained McClellan, who called it “the biggest advance in Medicare Part D since it was implemented back in my CMS days.” In 2025 and beyond, out-of-pocket spending for beneficiaries will be capped at $2,000. In addition, Part D plans will be responsible for 60% of the spend in the catastrophic phase — up from 15% currently — while manufacturers will be responsible for 20% of that coverage, up from zero currently.

Part D plans, he said, “do not have any new tools to really use to limit launch prices and negotiate lower launch prices.” And because of the more generous benefit, he said he expects to see an increase in drugs’ launch prices, as well as plans trying “to use the tools they have more aggressively to limit those increases in spending and the requirement under the law that premiums for drug plans can’t go up by more than 6%.”

He said he anticipates plans tightening their formulary designs, as well as continuing to use utilization managements tactics such as prior authorization — “approaches that beneficiaries don’t like, prescribers don’t like but [are] an effective tool for meeting drug costs and for, done well, trying to promote more appropriate drug use.”

However, McClellan said he expects a somewhat different situation with Medicare Advantage plans “because the MA plans in many cases are already contracting with their provider networks in ways that encourage prescribing that meets the plan goals. The intent of Medicare Advantage is to get a focus on total cost of care and get more accountability to the health plans and the providers” via approaches such as early diagnosis and using medications to “prevent disease progression and downstream complications.”

In addition, he said, “Medicare Advantage plans have more room in terms of their total payments from Medicare vs. their cost of care to subsidize Part D premiums or to offer somewhat more generous coverage today. The premiums are lower and the benefits are more generous by 10%, 15% in MA plans vs. stand-alone Part D, and I think that differentiation is going to increase, so I expect to see this implementation of the Part D benefit changes creating more of a tailwind for the growth that we’re seeing in Medicare Advantage next year, 2025 and then into 2026 and beyond when these price negotiation provisions kick in because…it’s going to be easier to do the work, the infrastructure, the care integration, to manage these total costs of care, including the drug.”

CMS is trying to take a similar approach to using preventive care to boost better population health outcomes via its various alternative payment models, said McClellan. So, asked Kennedy, are such models likely to grow more under the IRA?

“I definitely think the fundamental trend is there,” he replied.

Patient Listening Sessions Should Be Useful

CMS has revealed that between Oct. 30, 2023, and Nov. 15, 2023, it will hold patient-focused listening sessions for each of the drugs.

“I’m really glad CMS is doing them,” remarked McClellan. “It’s a great opportunity to hear from patients and other stakeholders, clinicians, expert groups that care about patients and that definitely have some ideas they’d like to get into this negotiation process, especially around comparative effectiveness.”

However, he observed, “as with other things in this first year, CMS has not provided as much [information on] exactly what they’re looking for in these sessions and what kind of input would be most helpful. That’s going to get better over time. But hopefully between now and when CMS holds the sessions, maybe in another month or so, they’ll provide a little bit more guidance.”

“Comparative effectiveness is not going to be necessarily easy and clear and straightforward to implement, even though it’s the factor that CMS says is most important in price negotiation because there are a lot of dimensions to it,” declared McClellan. “And this is going to be a qualitative approach” as opposed to a quantitative framework.

CMS will still need to address multiple questions, he stated. For instance, “What constitutes a meaningful difference in outcomes associated with a particular drug or drug class to qualify for an impact on the negotiated price? Are there safety and side effect issues that also count, and how much? Are there issues related to ease of use, like having to take only one pill a day or one drug rather than three? Are there perspectives related to diverse underserved populations that may not have access to specialists and frequent in-person visits that can help with drug management? Is there evidence on older beneficiaries, patients with comorbidities which are typically underrepresented in clinical trials but have worse outcomes and are certainly over represented in Medicare? There’s a lot of stuff that could be relevant here.”

Manufacturers with drugs on the current negotiated list, as well as ones with products they believe may be on future lists, can highlight “the so-called real-world evidence that a manufacturer has worked to develop after a drug was approved to help fill in those gaps. So many of the drugs on the list this year have had additional label indications added: sometimes additional populations, sometimes new insights about dosing or how to address side effects or, in some cases, actual comparative-effectiveness studies. CMS has not yet been really clear about what constitutes good enough real-world evidence. They’ve said that they’re going to consider things beyond traditional clinical trials that get approval,” unlike some assessments outside of the U.S. that focus on randomized clinical trial data only.

“All this will be happening going forward, but for now, I do think CMS is trying to consider those different factors,” he stated. “At some point in this process, maybe next spring, summer when they put out their summary of why price negotiations came out where they did for these drugs, they’ll put that in a broader framework with some lessons learned so that all of us outside don’t have to just try to read the tea leaves and the smoke signals.”

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