In continuation of IQVIA’s Inflation Reduction Act thought leadership series, the following is the fifth in a five-part blog series analyzing the first 10 products selected for Maximum Fair Price (MFP) negotiations. These 10 products represent the first of up to 100 products scheduled to be negotiated between 2023 and the end of the decade. The overall economic impact of the first 10 products belies the long-term impact on the life sciences industry, which will only grow as more products are added to negotiation.

Signed into law in August 2022, MFP negotiation is one of the IRA provisions that is intended to lower prescription costs for Medicare beneficiaries and reduce drug spending by the federal government. The provision calls for the U.S. Department of Health and Human Services to negotiate the price of Medicare Part D drugs (starting in 2026) and Part B (starting in 2028), targeting “top spend” medicines that have been on the market for at least nine years (for small molecules) or 13 years (for large molecules).

The effects of the Inflation Reduction Act will change many aspects of life sciences in the United States and globally. The first 10 products selected for Maximum Fair Price negotiation represent an important milestone, but it is at the very beginning of the law’s implementation, and there is a complex road to the true long-term economic impact. Like the launch of Medicare Part D, the IRA is a defining moment in the industry. We will look at the industry pre-IRA and post-IRA as many of the long-held industry strategies will be forced to change.

For CMS, the first 10 products represent high-spend drugs totaling ~$39 billion in 2021. The net cost impact of negotiations, however, will be muted as six of the 10 are already heavily discounted, and another three are moderately discounted, while only one, Imbruvica, is slightly discounted. Of significance is that seven of the first 10 products selected fall into cardiovascular and diabetes treatments, which are broad therapeutic categories that affect millions of seniors. Additionally, six of the selected products were already nearing the end of their patent life, or are past it, as is the case for Novolog, with only three having multiple years remaining (Enbrel, Imbruvica, and Eliquis).

For manufacturers, the initially selected products represent only the first 10% of products that will be negotiated by the end of the decade. As the list expands to include the next round of products, and ultimately moves to include Medicare Part B where discounts are smaller, the economic and strategic impact will only grow. Of additional concern are spillover into Commercial channel, the indirect impact for competitive products of a new lower net price in the market, payer concessions required beyond the new MFP price, and changes in utilization.

The industry can also expect greater payer controls driven by sponsors’ increased liabilities under the new Medicare Part D benefit design and the expectation that they cover negotiated drugs. Greater controls will, in turn, drive even higher rebates. The Maximum Fair Price, however, should not be viewed as the new price but rather the new price ceiling. The floor can, and likely will, be lower than MFP for many selected brands.

With billions of dollars in revenue impacted and the potential to reach hundreds of economic years lost, the IRA’s impact rapidly compounds. The first 10 products alone demonstrate the erosion of between 25 (Medicare weighted) and 62 economic life years (full impact assuming Commercial pricing spillover). Net sales impacts are not included in these calculations. Understanding the impact on investment decisions, Net Present Value calculations, clinical research, indication sequencing, SG&A strategy, mergers and acquisitions, and generic and biosimilar competition are just a few of the considerations.

For payers, Maximum Fair Price negotiated products will be required on formularies. This complicates significant shifts in liabilities and will force payers to adopt even more stringent formularies to control utilization while extracting higher rebates. Much is still unknown regarding cash flow of how the discounts make their way from the manufacturer to the payer and the role of CMS as a go-between.

For patients, the vast majority are unlikely to see significant reductions in their out-of-pocket cost exposure because of MFP negotiations. Seniors who do see savings will be Standard Eligible beneficiaries consuming prescriptions in the Catastrophic phase of coverage, which is a small subset of the larger Medicare populations. However, that is not a result of MFP negotiations but rather the reduction of the 5% coinsurance in the Catastrophic phase of coverage. This could create an expectation gap from patients on an expected reduction in cost exposure that never materializes.

The primary, secondary, and tertiary impacts of the IRA will play out over the next decade. Alternations in brand economics, economic lifecycle, market competitiveness, and patient experience will have many intended and unintended consequences. Regardless of whether you are a patient, prescriber, payer, pharmacy, or other stakeholder, all will be impacted.

At the time of publication, multiple lawsuits from the industry are pending in attempts to block all or pieces of the legislation from going into effect. For this blog, we will assume that the law is implemented as passed.

Special thanks to Marcella Vokey, Ingrid Hirt, Jeanna Haw, James Brown, Rob Glik, Jeff Thiesen, Michael Kleinrock, and Mason Tenaglia for their contributions.