Learn about the impacts of the Inflation Reduction Act on payers and patients, highlighting the changes in Medicare benefits and drug coverage coming in 2025 and 2026.

My name is Melissa Andel. I am the principal of CommonHealth Solutions, LLC, and we are a market access and government payer support consulting firm. So I have been consulting for about 10 years now, and I like working with pharmaceutical manufacturers and health plans to help understand what's really going on at the legislative and regulatory level, particularly with respects to Medicare and Medicaid, 340B, all of those government programs. Helping my clients really kind of understand not only how the programs work, but also how the new policies and how things are changing with the program are really going to impact the clients and the patients that they serve. Can be very confusing and hard to keep up with a lot of what's going on. I'm coming out of Washington in Congress or CMS in Baltimore. So I really enjoy working with my clients and doing sort of strategic advising and helping them anticipate and prepare for what's coming next.

With the uncertainty surrounding the Inflation Reduction Act’s (IRA) impact on payers and patients, what can payers do to prepare to ensure coverage and patient quality of life? 

I think, so that is definitely a question that everybody is asking. So I think what payers can do to prepare is to really understand how the changes that are going to be implemented in 2025. And ther is not just the redesign of the Medicare benefit which is going to require the payers to pick up substantial financial liability relative to what they have been responsible for under the current benefit. But they're also going to have to implement what is known as the Medicare prescription payment plan, which has sort of been flying under the radar, but it is a program that is going to allow beneficiaries to spread out their cost sharing over the course of a benefit year. And so this is designed to help beneficiaries especially beneficiaries on high cost drugs that will frequently hit that now $2000 cap maybe the first time to go to the pharmacy in January to spread out those costs over the course of the year. 

But plans have to assume the financial liability associated with that. So they need to be working with their actuaries to make sure that they are pricing that risk appropriately into their premiums. But they also need to be thinking about how that's going to be operationalized, not only at the pharmacy level, through coordination of benefits, but also on the backend, they're going to have to bill the beneficiaries and collect the payments and everything. And then that is going to be from a pricing standpoint when you think about pricing from what is a premium going to cost for me to be able to sell this plan, you're going to be working within that. You're also going to be thinking about what are the additional financial implications of being financially liable for the cost of drugs, how am I going to design a formulary that still meets CMS requirements while being affordable from the plan level and from the beneficiary perspective.

And so it's going to be really interesting to see how that works in practice. And I know that the plans are currently working on modeling all of that right now because their bids are due for 2025 in June, but it will be interesting to see what the market looks like in October once open enrollment happens. 
And so I think sort of to go back to the original question, it's going to be a little bit of a bumpy ride. I've been talking to folks and sort of been saying I think 25 and 26 could sort of look like 2006, 2007, when Medicare first started in the broader commercial market, you know, when the ACA plans, exchange plans first launched. There was a lot of uncertainty, the risk pool, who's going to sign up, what's going to happen.

And so we saw the a lot of entries, a lot of exits, premiums kind of bounced around there for a couple of years before they settled down again. So I think we're going to be in for a bit of a, like I said, 25, 26, going to be a little uncertain as far as the pricing and who all's going to be able to stay in the market and sort of white knuckle through that and to be able to manage that risk and still stay, you know, profitable or at least able to cover your costs if you're a non-profit plan. So it will be interesting. Plans definitely have their work cut out for them in figuring out how to make the math work. 

How does the IRA specifically impact Medicare beneficiaries? 

So from a beneficiary perspective, I think the biggest thing is going to be that $2000 out-of-pocket cap. In 2024, there is an out-of-pocket cap. They got rid of the catastrophic coverage and so its around $3032 hundred dollars this year. Beneficiaries will no longer have cost sharing after that point. But really starting next year this is the first time in the program's history that there is going to be that hard $2000 out of pocket cap and I think that's going to be especially for beneficiaries that are on some of these super high cost drugs that they take every month that's going to be a game changer for them. 

I think the other thing, and this isn't going to kick in until 2026, but in 2026, once we have those drugs that have been selected for negotiation, those 10 drugs, the negotiated prices kick in, we don't know at the moment what those prices are going to look like and there's a little bit of uncertainty over how much lower the negotiated prices are going to end up being from the net prices that the plans are actually paying today. So I do think there's some uncertainty as to how much overall cost savings there will be. From the beneficiaries perspective though, they will be able to take advantage of reduced cost sharing because right now, they're paying cost sharing based off of the list price of the drug, or the negotiated price, not the net price to the plan. So for the beneficiaries on those selected drugs, they should see some cost sharing relief. The flip side of that is the Inflation Reduction Act requires Part D plans to cover all of the selected drugs. So it's sort of like a consolation prize to having your drugs selected for negotiation: all of the Part D plans have to cover you. 

So there are questions where you have therapeutic classes that have one selected drug, but a couple other options of drugs that are not selected. What happens to the patients who are currently taking the non-selected drugs? Well, you know, CMS has said that they expect plans to offer preferential cost sharing or tiering for the selected drugs relative to non-selected drugs. So are we going to see patients on a non-selected drug, will they have their cost sharing increase? Will they face utilization management? Will they feel pressure to switch to a selected drug off of a non-selected drug? It is not clear at this moment, CMS has said through guidance that they don't want to put hard rules around the coverage requirement for the selected drugs. They want to see what the plans do, how they place them on formulary. They want to review that and then sort of make decisions on a case basis-by-case basis. But I do know that some patient advocates are concerned that patients are going to either for financial reasons or because plans are going to drop coverage of non-selected drugs or through utilization will feel pressured or have no other option but to have to switch to a selected drug.

And so it's not clear at the moment exactly how, but that is something that's coming. And will patients feel like they're really realizing value in exchange for maybe some of the other actions that they're going to have to take, maybe they have to switch a drug or something like that. And then I think the other interesting thing is that with that $2000 ou -of-pocket cap, if you were on, I mean, some of those selected drugs cost six figures a year. And so if they were covered on a specialty tier, you were paying a 33% coinsurance for that. Is the $2000 cap going to sort of negate you feeling like you're saving money because the price of the drug itself has been negotiated? You know, if you're still hitting $2000 in January, regardless of if the price is negotiated or not, do you as a patient really feel like you're, you might feel like you're getting savings from the $2000 cap, not necessarily from the negotiated price of the drug. So it'll be interesting to see how beneficiaries process that.

We see actually from polling that a good percentage of Medicare beneficiaries don't even realize that Medicare is negotiating prices. I think it's about 35 or 40% said that they did not know that that was part of the IRA. And so but I think, you know, like I said, I think that reduction on cost-sharing is going to be the really the big, the big impact for Medicare beneficiaries starting next year. 

How are pharmaceutical manufacturers adjusting their strategies considering the IRA’s prescription drug price reforms? 

Yes, there's a bunch of different ways, right? Interestingly, we have seen manufacturers say at least when they talk to investors that they are rethinking their pipelines because biologic drugs have a longer sort of period of protection than your traditional small molecule drugs.
Manufacturers are sort of steering their pipeline now more towards biologics. Because if you have a biologic, you have a longer period of time before the government can come in and negotiate those prices. Now, the market was moving that way anyway, but to the extent that that also provides another incentive, and in fact, though, I would argue that it does seem to be a legitimate concern because there are rumblings on the hill of passing legislation that would actually equalize the amount of time. So basically increasing the exemption period for the small molecule drugs to make it equal to biologics because a Biologic all things being equal a biologic therapy is more expensive than a small molecule drug and so you don't want to provide any sort of incentive for manufacturers to not investigate small molecules and to put their money into biologics. 

The other thing we're seeing is because the IRA offers an exemption for orphan drugs. Several manufacturers have announced that they've stopped investigating potential new indications for existing orphan drugs because they're like, no, we want to protect this molecule and it's orphan drug exemption. I think that probably only goes so far. I mean, if you can think about something like a, like a Keytruda, right? Like if, if you have a Keytruda in your portfolio and you are confident that you can continue to add indications to it and continue to generate revenue off of it, I don't think you're going to let the IRA stop you from doing that.

But for some of these smaller drugs, I do think we're going to see pulling back a little bit on some of those additional indications. I think we're going to see higher launch prices. I know when I have conversations with manufacturers, they are very aware of the presence of the inflation penalty rebates and you don't need a PhD in math to understand that the higher I set my launch price, if I'm going to be limited to, you know, an inflation-based price increase after I set my launch price, you know, the percentage of X is going to be bigger the bigger X is. So I now have an incentive to set that launch price as high as I think the market will let me set it instead of coming a little bit lower. 

And so we are seeing manufacturers sort of react in ways that could have some negative impacts. You know as far as things like the existence of rebates and another question is how does the redesign of the Part D benefit continue to influence preferences for high-list high rebate drugs? And I think it still sort of maintains that even though the plan is going to be financially responsible into a lesser extent the manufacturer is going to have those rebates I think the plans are going to on those high-cost drugs where they know you're going to like go into that catastrophic portion I think the plans are going to want additional rebates from the manufacturers on the back end.
That's also going to drive where a manufacturer wants to set their launch price. If they think they're going to have to do aggressive rebating on the back end, they're going to set that launch price as high as possible. And you know it also depends, it's going to vary for manufacturers. What is their Medicare market exposure? What is the market for that product for Medicare versus commercial? And how do you balance that? Can you shift some financial losses from Medicare over to the commercial market?

You know, an interesting thing with the selected drugs, I think people are already talking about, you know, okay, so functionally what is going to, I think people are anticipating that what is going to happen is we are essentially going to remove the rebate revenue for those products from the Part D plan revenue stream, right? So I think we're expecting that negotiated price to end up somewhere around where the current net price is. So manufacturers might get the same revenue targets might not fall that much. From a part D plan perspective though, they're going to be losing a lot of rebate revenue. So are they going to try to generate additional rebate revenue then from their commercial line of business to try to replace a loss of rebate revenue on the Part D side of business? Or are they going to get more aggressive on the commercial side to try to negotiate rebates with manufacturers there to help offset the rebate revenue losses on the Part D side? And so I do think there are some manufacturers that are like, well, we're a commercial product. We don't have much part. D and market exposure. We're fine." But maybe the plans, I mean, yes, there's a firewall in the plan side between part D and commercial, but maybe the commercial guys try to get more aggressive and rebate negotiations.

So I think the manufacturers are all thinking about this. I mean, there's also just, I do think it probably or I would assume, it's probably nice for the manufacturer point of view to at least have some certainty. Congress has been talking and beating this drum about price negotiation and what is that going to look like? And so it is kind of nice to know, all right, this is what we're dealing with. This is the structure that we have in place, at least for the foreseeable future. Now we at least know, and we can work around that. But they're going to work around it.

So yeah, so there's definitely, I think there will be changes and impacts for manufacturers, definitely to be thinking about. But I think the biggest one is, like I was saying, the higher launch prices. Everybody was predicting that from the very beginning Even before the inflation reduction act was passed, everybody was saying like okay Well, they'll just set higher launch prices to make up for this and I think we're seeing that now.

What can health care professionals do to help prepare patients who may be impacted by the IRA? 

I think this is it's going to fall into health care professionals really to do patient education. And the important thing for them whether they utilize like their electronic health record tools and things like that, they need to be aware, I think we're likely to see some big formulary changes from 2024 to 2025. So as familiar as a health care provider thinks they might be with the formularies of like the popular Part D plans and their area and from their patient mix, they need to be prepared for the fact that those formularies might or are likely to change in 2025. So am I going to need to switch my patients? Are there other options, lower cost options available for my patients? I think the Medicare prescription payment plan, them being able to talk to their patients about that before they get to the pharmacy and to maybe do a little bit of education with the patients about this program and the fact that it exists, that would help.

And then also being aware that now that there is that $2000 cost-sharing cap. If you do have a patient, maybe you're starting them on a new expensive therapy, just being aware and understanding that that is in place and maybe being able to talk to the patient about that. So maybe the patient is less likely to simply not go to the pharmacy and just assume they can't afford something. Another thing, because a lot of providers do a lot of work with the patient assistance programs that are sponsored by manufacturers. And those are the programs separate from the coupons. So the Medicare beneficiaries can't use coupons. They can be eligible for these patient assistance programs. And a lot of times, the provider sends them directly there. Manufacturers are changing the eligibility and the generosity of some of those programs because of this $2000 cap. They feel like they don't have to necessarily be as generous because there's the limit in that Medicare population. And so providers should be aware that they're not be some changes to those programs. So any program that they will regularly refer their patients to might have some changes starting in 2025. 

So I think those are the big ones, formulary changes, socializing the idea of this prescription payment plan and the availability, so, and talking about the out-of-pocket cap so that patients are maybe less nervous about their out-of-pocket costs. I think those are sort of the big role that providers are going to be playing and helping to run sort of some interference to prevent confusion at the pharmacy counter.