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Prescription Drug Provisions in the Inflation Reduction Act of 2022: A Payer Perspective

Web Exclusives - Perspective
A JHOP interview with Matt Mitchell, PharmD, MBA, MHP, FAMCP

The Journal of Hematology Oncology Pharmacy (JHOP) interviewed Matt Mitchell, PharmD, MBA, MHP, FAMCP, Director, Board of Directors at the Academy of Managed Care Pharmacy and Associate Vice President, Pharmacy Services at SelectHealth, to obtain his perspective on the potential impacts of the Inflation Reduction Act (IRA) on patients, payers, and manufacturers. Please note that this interview was edited for concision and clarity.

JHOP: What is your overall perception of the changes to the Medicare program stemming from the IRA legislation enacted in 2022?
Dr Mitchell: The legislation is complicated, and the impact on all stakeholders at this point is unknown. It’s so dynamic that different stakeholders, including payers of course, are waiting for interpretations from the Centers for Medicare & Medicaid Services (CMS) on a regular basis.

JHOP: Of the changes, which do you think are particularly beneficial to Medicare beneficiaries?
Dr Mitchell: Potential opportunities for Medicare beneficiaries include the stabilization of premiums, the maximum out of pocket of $2000 per year, and copay smoothing. I think for those on especially expensive medications and medications for chronic illnesses, which is a good portion of the Medicare population, the $2000 maximum on out-of-pocket cost will be the biggest benefit. The minimized coverage gap will give patients the opportunity for a more stabilized copay through the year.

JHOP: Do you think the legislation will result in improved access to prescription drugs and vaccines?
Dr Mitchell: In the short term, the changes will make some specialty drugs more affordable for patients, and they will be guaranteed access to 10 Medicare Part D drugs selected for CMS price negotiation beginning in 2026. However, in the longer term, access may be reduced to make up for the increased cost of the benefit. As payers, we’ve got to respond to our customers and make up for increased cost shifting to payers.

JHOP: Are any of the IRA provisions particularly concerning to payer organizations that have Medicare beneficiaries?
Dr Mitchell: I think the $2000 out-of-pocket maximum is the most concerning to our organization because the reduced member responsibility creates a big risk for adverse selection. It’s also a quick turnaround because it’s being implemented in 2025. In addition, payers have concerns regarding the impact of formulary changes with the introduction of the top 10 negotiated drugs.

JHOP: How will your organization seek to remain competitive in providing managed Medicare coverage?
Dr Mitchell: Thinking about the IRA changes, we need to set the Medicare formulary so it is competitive and we attract the right risk based on risk adjustment for money that we get back from CMS depending on the condition and how it is coded medically and based on pharmacy National Drug Code codes. The formulary is carefully evaluated for each therapeutic area.

Here’s an example: In the past, we felt that we’ve done a very good job managing patients with diabetes. From a care management standpoint, we ensure that patients come in for their visits, and we assign them medical Current Procedural Terminology codes. Then on the pharmacy side, we felt like we had managed drug utilization reasonably well. Even though drug expenditure is high for patients with diabetes as a whole, we don’t lose money on these patients, so we can attract those patients with a good risk profile.

Obviously, this is in addition to creating formularies with optimal utilization management in this environment with lower operational margins.

JHOP: Do you think being an integrated delivery network helps in that regard, as opposed to just being a commercial health plan?
Dr Mitchell: Yes, I do because I think you can capitalize on capturing medical services in addition to just paying for drug claims. I think you can also offset some of the potential losses in the Medicare population that will occur with the IRA legislation.

JHOP: How do you expect the IRA changes to affect commercial payers that have a large proportion of Part D–only beneficiaries in their managed Medicare population?
Dr Mitchell: All of the same operational requirements will impact Medicare prescription drug plan providers but they will be exposed to more risk because they are only responsible for pharmacy costs. Operationally, it will be complex implementing the requirements, such as covering a larger proportion of brand name Part D drug costs. It evens out the monthly cost-sharing for patients, but for payers, it’s the first and biggest logistic hurdle of the IRA legislation.

JHOP: Does the IRA legislation limit your organization’s ability to manage pharmacy utilization for your Medicare members?
Dr Mitchell: Certainly for the top 10 negotiated drugs, management through our formularies becomes more difficult. CMS has not clarified their position on step edits and tiering in the negotiated drug classes. Even with more clarification from CMS on the ability to manage those top 10 drugs, direct manufacturer negotiations only become more difficult. For example, if you look at the blood thinners on formularies, such as Eliquis and Xarelto, we are currently able to negotiate coverage with manufacturers for formulary position and coverage. The same is the case for diabetes drugs, where you have 2 sodium-glucose cotransporter-2 inhibitors on formulary. These are heavily rebated classes with a lot of competition. We currently receive preferred coverage rebates for these drugs, and with the IRA changes, I expect to get fewer rebates from some manufacturers on the non-CMS negotiated drugs due to the need to cover CMS-negotiated drugs with high utilization. However, for some select drugs or categories, non-CMS negotiated rebates may increase in order to get more favorable coverage. The IRA may result in increased member risk in some of these highly utilized categories, and we have to factor in risk adjustment when setting our formularies and our premiums.

JHOP: How are manufacturers responding to the IRA changes?
Dr Mitchell: Similar to payers, I think that they are continuing to look for more clarification from CMS on logistics and timelines. They are also trying to figure out how to optimize their negotiations with CMS. Right now, there’s uncertainty about how much negotiating power manufacturers will have, as opposed to CMS just giving them the price that’s expected.

JHOP: Do you think there will be any unintended consequences as a result of the IRA legislation?
Dr Mitchell: Yes. On the payer side, I think it will consolidate the managed Medicare market. Margins were already tight, and they will get tighter. It will push some payers out. In addition, to the degree that CMS will allow, I think plans will continue to try to maintain a closed formulary without adding rare or orphan drugs in their managed Medicare benefit offerings.

For manufacturers, some may come to market with higher prices for new drugs because they will be penalized for implementing price increases greater than the rate of inflation. Also, some may pull back on their clinical development programs for rare or orphan drugs because of the IRA. I don’t think this is something that is necessarily intended by CMS.

JHOP: In closing, what macro trends do you anticipate in healthcare management in the next 12 to 24 months that may or may not be driven by the IRA?
Dr Mitchell: There are a number of trends that we are seeing. With the IRA, we might see more manufacturers bringing authorized generics to market or reducing the wholesale acquisition cost (WAC) of their current products, which we’ve seen with insulin. For payers, if the WAC goes down, there would be a crossover effect into commercial lines of business because the rebates would go down for commercial payers as well.

Biosimilars will become increasingly disruptive as more and more are approved in high-cost categories. Again, for payers, there will be negotiating opportunities for rebates and formulary inclusion in some categories, such as immunology and all the adalimumab biosimilars coming and others to follow in the next 12 to 24 months.

Another big macro trend, which could have some impact on Medicare, is more vertical integration with pharmacy benefit managers (PBMs). We’re seeing more group purchasing organizations being put in place and more PBMs creating manufacturing companies, which will drive up the WAC. It will provide more revenue to the vertically integrated organization as a whole because they can now purchase the new product from their manufacturing company at a higher price, adding margin for the wholesaler, as opposed to more traditional rebates.

We are also seeing an increased number of payers implement strategies to reimport drugs, especially from our northern neighbors in Canada. Of course, the ability to reimport and implement price matching depends in part on the outcome of the 2024 presidential election, but it could continue to gain traction.

Because of the differential in healthcare costs in the United States and abroad, we could potentially see an increase in medical tourism to obtain products such as long-interval dosed infusions for multiple sclerosis. In Mexico and the Virgin Islands, for example, the cost of the drug is a fraction of what it costs in the United States. By going abroad, it saves the payer and potentially the patient a lot of money.

Finally, we’re seeing an increased appetite for specialty drug carve-outs in the commercial market. Also, self-purchase without insurance has become a trend. We’ve implemented 2 companies and programs this year to address that need, and it’s become a greater discussion. Exactly how much impact these trends will have on healthcare financing and delivery remain to be seen, but we are keeping an eye on them.

JHOP: Thank you, Matt. We appreciate your insights as we move into 2024.

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