IRA, MFN, and Ongoing Fiduciary Pressures Creates Ripple Effect Across the Healthcare Ecosystem

Summary

IRA Medicare provisions, increased focus on price regulations including Most-Favored Nation pricing, and broad fiduciary pressures have ripple effects across the healthcare ecosystem.

As the Centers for Medicare and Medicaid Services (CMS) implements the Inflation Reduction Act’s (IRA) Medicare Drug Negotiation Program, there are several other market dynamics, such Most-Favored Nation (MFN) pricing and broader fiduciary pressures, that are altering the status quo and taking center stage in policy debates. Stakeholders must anticipate near and long-term implications of the concurrent ripple effects of these policies. Planning around these policies can no longer be conducted in isolation, instead requiring a holistic, macro lens that considers the entire market landscape as demonstrated below.

Ripple Impacts of Policies Disrupting Traditional Environmental Considerations

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MFN & Price Regulation

Fiduciary Pressures

IRA

DTC Access Strategy

MFN Price Setting

PDABs

Investment Decision

Strategic Planning

Reconciliation Impacts on Enrollment

340B Reform

PBM Reform

NIH/FDA Cuts

MFP Evaluation

Competitor Negotiation

Direct negotiation

Part D Redesign

Inflation Penalties

ACIP: Advisory Committee on Immunization Practices; AMP: Average Manufacturer Price; DTC: Direct-to-Consumer; FDA: Food and Drug Administration; FFS: Fee-for-Service; HHS: US Department of Health and Human Services; ICR: Information Collection Request; MFP: Maximum Fair Price; NIH: National Institutes of Health; PBM: Pharmacy Benefit Manager; PDAB: Prescription Drug Affordability Board; R&D: Research & Development; ROA: Route of Administration; RWD&E: Real-World Data and Evidence; UPL: Upper Price Limit

MFP Effectuation

Impact: This is a major structural shift in how Medicare pays for high-cost drugs that will profoundly affect the supply chain. The impacts will span stakeholders, changing market access and research dynamics for manufacturers, introducing new financial and operational pressures on providers and pharmacies, and changing plan dynamics.

Highlighted stakeholder response:
Manufacturers:

If selected (or anticipating selection), prepare plans to effectuate MFPs and pivot pharmacy / provider access strategy
Anticipate and plan for MFP effectuation scenarios, including coverage shifts
Continue CMS engagement and stakeholder advocacy to support policy changes and mitigate unintended access challenges

Providers:

Evaluate and diversify revenue streams, especially if current operations rely on buy-and-bill profitability
Engage with CMS to communicate financial risks and advocate for fixes to current methodology
Evaluate cash flow impacts of different effectuation approaches

Competitor Negotiation

Impact: The entrance of MFP for negotiated competitor products can reshape the market for the class.For example, introducing price pressures across competing drugs, changes to formulary placement, reduced negotiating power, shifts in manufacturer behavior, and other alterations to payer and provider incentives will impact market dynamics.

Highlighted stakeholder response:
Manufacturers:

Anticipate challenges, including how payer behavior, formulary design, and provider preferences could be altered
Double down on developing a value narrative that highlights product differentiation

Direct Negotiation

Impact: Preparing for negotiation selection happens long before the initial price applicability year. Aligning upon a value narrative and developing a supportive evidence generation and negotiation strategy is critical to inform ICR development. In addition, anticipating the range of MFP scenarios informed by possible therapeutic alternatives and CMS adjustments will inform CMS engagement strategy.

Highlighted stakeholder response:
Manufacturers:

Identify negotiation risks and potential timing
Conduct an evidence review and gap assessment, identifying strengths and risks within the existing evidence body and develop an evidence generation plan to address gaps
Ensure organizational readiness by determining team structure, functions, and roles for each step in the negotiation process
Identify the range of potential therapeutic alternatives and calculate impact on a range of starting points and initial offers
Build an internal negotiation playbook to ensure aligned strategy through each negotiation milestone

Part D Redesign

Impact: This and other IRA policies will increase payer liability. Subsequent shifts in payer formulary management (both cross-benefit and within the Part D benefit) will impact how manufacturers engage with plans.

Highlighted stakeholder response:
Manufacturers:

Quantitatively model market impacts of redesign on stakeholder economics, understanding how shifts in payer management may impact market share
Assess the growing role of risk adjustment in how plans set formulary design and contracting strategies
Understand the implications of redesign on patient movement from Medicare FFS to Medicare Advantage

NIH/FDA Cuts

Impact: Funding and personnel cuts at key agencies have been a primary focus of the Trump administration, setting the stage for a landscape with less research infrastructure, less available capital for innovation, and greater risk associated with R&D.

Highlighted stakeholder response:
Manufacturers:

Identify pipeline risks as a result of proposed cuts (e.g., vaccine coverage in a current state with uncertain ACIP)
Prepare for long-run implications of basic science cuts and identify opportunities to conduct research in new ways (e.g., RWD&E, different settings of care, etc.) and for clearly demonstrating transformational benefit of products

Providers:

Identify where revenue streams can be made up for potential loss of clinical trials
Develop perspectives on how patients can be connected to innovative therapies considering a potential slowdown in trial products

Strategic Planning

Impact: Ripple effects across the environment will change how organizations define their future direction, set goals, and develop strategies to achieve their vision. Strategic planning will need to account for the intersection and interplay of various reforms.

Highlighted stakeholder response:
Manufacturers:

Understand the interplay of price control methodologies introduced across the ecosystem (e.g., UPLs, MFN, and MFPs) and shape environmental challenges to create sustainable systems
Scenario plan how strategic planning around certain scenarios could be influenced by other ecosystem impacts. Determine how these changes impact business model and overall investment philosophy

Investment Decision

Impact: The intersection of new policy pressures will shape long-term pipeline planning and investment decisions. Ripple effects of IRA and MFN will require stakeholders to reevaluate investment and life cycle management strategies. Identifying potential negotiation selection early is key so that trial designs and regulatory and evidentiary strategy can be developed accordingly.

Highlighted stakeholder response:

Conduct brand-specific scenario analyses to assess expected regulatory and market conditions to inform therapeutic area targets, formulation and ROA decisions, and phasing of indications
Strategically evaluate portfolio decisions, consider how launch strategy may now account for depressed lifecycles, reference pricing, and potential commercial spillover

Reconciliation Impacts on Environment

Impact: Congress is considering legislation that could significantly reduce the number of individuals on Medicaid and covered by exchange plans, while potentially increasing the number of people without insurance.

Highlighted stakeholder response:
Manufacturers:

Review patient support program eligibility criteria and internal resourcing needs
Evaluate how the loss of insurance will impact overall market access strategy

Plans:

Consider the effects on reduced exchange enrollment on plan premiums

340B Reform

Impact: In the absence of reforms, court rulings continue to influence market dynamics. Key policies from HHS include the shifting of 340B oversight to CMS; this is likely to intersect with negotiation, but the specifics are undefined.

Highlighted stakeholder response:
Manufacturers:

Analyze liability under potential reforms and organizational objectives in ensuring program compliance
Consider the intersection of of negotiation, the 340B program, and program integrity reforms
Consider how the reorganization of HHS and the restaffing of the 340B program staff to CMS could impact program operations
Identify potential 340B reforms that could be included as part of an overall MFN implementation

Plans:

Consider new requirements to ensure duplicate discounts are avoided and potential implications for provider reimbursement

Providers:

Consider patient/organization eligibility for the program and potential acquisition costs under potential reforms

PBM Reform

Impact: Congress is considering legislation that could change the status quo for PBM/plan incentives and alter drug formulary negotiations, including delinking, spread pricing and pass through policies.

Highlighted stakeholder response:
Manufacturers:

Scenario plan for pivots to market access strategies to operate under potential scenarios, e.g., rebate passthrough, formulary coverage of drugs

Plans:

Scenario plan for different PBM reform proposals and impact on plans / formularies and overall business model

DTC Access Strategy

Impact: Potential creation of a new DTC channel that could take a range of forms, from incremental in nature to new government-mediated purchasing program, while shifting how patients access drugs.

Highlighted stakeholder response:
Manufacturers:

Determine which drugs would be best suited for a DTC model
Review successes and operations of DTC models on the market today
Distill a range of impacts and effectuation scenarios across medical and pharmacy benefit products
Participate in shaping a DTC model to create sustainable approach

Plans and PBMs:

Assess potential impacts on formulary management, bidding behavior, plan payment (including risk adjustment), and network contracting with pharmacies and Part B providers

MFN Price Setting

Impact: MFN represents a drive toward a larger government role in drug pricing and use of international reference prices as a benchmark for government price setting, with the potential to completely shift the status quo of US market dynamics.

Highlighted stakeholder response:
Manufacturers:

Analyze feasibility of participating in a voluntary MFN model
Assess implications of MFN program participation on IRA Medicare negotiation
Assess impact of MFN on global launch strategies and R&D development approach

Manufacturer and Payers:

Evaluate pricing strategies and prepare for a spectrum of paradigm shifts across supply and value chain dynamics
Engage in public comments and federal engagement opportunities

PDABs

Impact: State policy makers, independent of federal actions, have pursued reforms to limit drug prices. Policymakers are grappling with many of the same issues as those being resolved by CMS in Negotiation Program, including establishing a value-based price (i.e., UPL) and a mechanism to effectuate the price in a narrow market.

Highlighted stakeholder response:
Manufacturers:

Advocate for favorable selection and effectuation policy reforms
Prepare for potential selection by demonstrating product value

Pharmacies and Providers:

Prepare for effectuation of UPLs through strategies to mitigate potential cash flow issues

Looking Ahead

While the figure above captures the unique market dynamics and a subset of possible responses to each policy within each policy change (i.e., individual ripple), the effects are exacerbated and may change as these events occur in tandem. An effective strategy starts with leveraging opportunities to influence the environment while it remains fluid, paired with proactive scenario planning to ensure successful business strategy evolution and execution once market impacts crystallize.

Avalere Health’s subject matter experts in policy, market access, and evidence assessment can help stakeholders understand what each of these dynamics mean for your organization, how they interact, and how to respond accordingly.

To better prepare for and shape the evolving healthcare landscape in 2025 and beyond, connect with us.