IRA and US Drug Price Negotiations

Having followed the progress of the Inflation Reduction Act (IRA) for the last few years, key learnings and advice and guidance for next steps from industry, government, and academics were sure to be of interest during ISPOR International this year!

IRA Negotiations: What have we Learned and What are the Impacts?

As of the conference (May 2024), based on the timelines laid out in the initial CMS negotiation guidance, manufacturers and the government were locked in a series of face-to-face meetings to align on negotiated prices. The spotlight was clearly on the IRA and its implications, revealing a critical time of adjustment and learning within the pharmaceutical industry. The conference discussions made it clear that the industry is facing a crucial period of adaptation, with a pronounced emphasis on the strategic necessity of portfolio prioritisation and the integration of real-world evidence (RWE) into financial planning frameworks.¹ Moreover, the results from a PhRMA survey that 78% of companies are reconsidering their early stage development projects in direct response to the IRA negotiations underscored the act’s significant ramifications, though it is unclear whether the IRA is still being used as a convenient scapegoat for other planning decisions.²

Additionally, CMS released updated guidance, implementing key learnings from the 2026 (current) negotiation cycle and implementing them for the 2027 negotiation cycle, due to start in February 2025. The document, open for public comment through May 2024 and not yet finalised, focusses on more explicitly incorporating more details into the process: incorporating patient-focused information at early stages of the negotiation process, detailing what the offer/counter-offer system will look like, and outlining how exactly CMS proposes to track drugs that are eligible for a negotiated price, something that was left unclear in the prior guidance and was a huge area of concern for all parts of the Medicare payment ecosystem.³

To that point, the biggest takeaway that I heard over and over was the need for more transparency. There was an excellent session moderated by Steve Pearson (Special Advisor at ICER) where individuals debated the merits of using a “cookbook” vs a “blender” approach to negotiations; in other words, was it better to have a negotiation system where every single input/piece of evidence that a manufacturer submitted to CMS would be assigned a particular weight and the negotiation was effectively a formula, or was it better to take a very top-level, holistic approach where all of the evidence goes in to negotiations, is considered, and then a final price comes out.⁴ Unsurprisingly, manufacturers were strongly in favour of the cookbook approach – if they need to generate information, they want to know how heavily each item will be weighted so they can make appropriate long-term evidence planning decisions. Several representatives took a very amicable tone as well, explicitly recognizing that the negotiations are ongoing and they want to work with CMS in a mutually beneficial way so that both sides go into negotiations fully prepared and can get the best result for patients.^{4, 5} However, there are substantial advantages for CMS to be less transparent, namely that it prevents future negotiations from being “boxed-in” where a decision one year binds the agency for years to come or opens them up to future lawsuits.

While I acknowledge CMS’s preference to be slightly less transparent (“blender” is a bit harsh for the negotiations…), the approach currently maintains the impression that the drug negotiation process is a “black box” and ultimately, the negotiations are being used to score political points and demonstrate that the government is trying to reduce prices. Even if CMS does not want to assign weights/points to particular pieces of evidence and wants to align with a more holistic approach, Prof. R. Brett McQueen talked briefly about how negotiators could do so while maintaining clear boundaries of how certain factors would influence final decisions.⁴

Regardless of the approaches by CMS, many attendees were not convinced – on a poll taken at the end of the session, while over 50% of attendees believed CMS should take a “partial cookbook” approach (where there is some flexibility in the weights given to inputs), over 60% thought CMS will actually be taking a blender approach, showing that much needs to be done to improve communication and transparency between CMS and industry.

State-level PDABs – Lurking in the Background?

Finally, I have to say that I was a bit disappointed in the lack of discussion surrounding state-level Prescription Drug Affordability Boards (PDABs). Despite their growing influence in setting drug prices not only for public plans but also for private insurers, PDABs seemed to fly under the radar. However, their potential to significantly affect drug pricing and availability on a state-by-state basis adds another layer of complexity to an already challenging landscape, suggesting a need for heightened awareness and strategic planning among pharmaceutical companies.

I, along with my colleagues Sarah Neubert and Julia Eustace, looked into the background, powers, and negotiation criteria for state PDABs, and I was proud to have the opportunity to present a poster based on this research.⁶ With the broader discussion of drug pricing negotiation in the US, we were thrilled to have this poster selected for the first poster tour of the conference, with a great turnout and excellent questions from the audience focusing on how PDABs assess submitted evidence and what the knock-on effect may be for other commercial/public payers. We are looking forward to building upon this research over the next year as we begin to understand the PDAB negotiation processes and how manufacturers can best set themselves up for success.