CRA Insights

Part 4: Inflation Reduction Act: The indirect effects and implications of IRA price negotiations

June 5, 2023
Charles River Associates Yellow Pill Production Line

Since passage of the Inflation Reduction Act (IRA) in August 2022, the focus of many industry analysts and pharmaceutical companies has been on two important first order concerns: identifying products to be negotiated by the Centers for Medicare & Medicaid Services (CMS) and assessing the direct impact on prices. Most companies have now completed the critical analyses associated with these direct effects.

Less discussed, but potentially just as important to industry evolution, will be the indirect impacts of the IRA on:

  • Competitive Dynamics, for example, competition for Part D formulary positions in categories with negotiated brands, spillover into commercial formulary competition, the impact on list vs. net price competition, and the impact on biosimilar entry;
  • Stakeholder Response, including the reaction of providers to formulary restrictions in categories with negotiated brands, the impact of MFPs on provider economics, and the response of patients to reduced out-of-pocket (OOP) costs associated with MFPs and OOP caps; and
  • Investment Decisions, including portfolio design and therapy area (TA) selection, evidence generation and indication expansions, contributions to copay foundations, and pricing and contracting investments.

Having addressed the first order effects to the extent feasible, pharmaceutical companies have increasingly turned their attention to anticipating and planning for some of the most critical second order effects. There are layers of additional analyses that companies are now undertaking to plan more fully for, and mitigate the detrimental effects, of the IRA.

CRA recommends a three-stage approach to prepare for the second order effects of the IRA.

Step One: Articulate the remaining uncertainties regarding how the IRA will be implemented by CMS and identify scenarios most likely to impact their products.

Step Two: Consider how key stakeholders will respond to CMS negotiation outcomes and develop contingency plans.

Step Three: Reconsider a broad range of investment decisions, because the returns on those investments may be impacted by the combined direct and indirect impacts of the IRA.

Read Part 4 here.

Our first installment covered the expansion of access for consumers and can be viewed here. Our second installment discussed the implementation of medication pricing and reimbursement rules, which can be viewed here. Our third installment covered several reforms to patient cost-sharing for Medicare Part D Plans (PDP) and Medicare Advantage Prescription Drug (MA-PD) Plans and can be viewed here.