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: This includes the reaction of providers to formulary restrictions in categories with negotiated brands, the impact of Maximum Fair Prices (MFPs) on provider economics, and the response of patients to reduced out of pocket (OOP) costs associated with MFPs and OOP caps.
- Investment Decisions: This includes portfolio design and therapy area 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 develop comprehensive preparation plans and mitigate potentially detrimental effects based on the IRA.
To prepare for the second order effects of the IRA, one important step that we recommend for manufacturers is to clearly articulate and outline the remaining uncertainties regarding how the IRA will be implemented by CMS and identify scenarios most likely to impact their products.