Signed into law by President Biden in August of last year, the Inflation Reduction Act (IRA) mandates a series of changes over the next six years that will dramatically affect drug pricing and subsidy eligibility for Medicare and Medicaid beneficiaries. Among its most far-reaching measures is the authorization for the Centers for Medicare & Medicaid Services (CMS) to negotiate prices for certain high-costs drugs. The complex collection of IRA changes and their impact on drug costs and accessibility for patients were the subject of the Leonard Davis Institute of Health Economics (LDI) May 5 conference entitled “A Prescription for the Future of Drug Pricing.” The keynote speaker, Mark McClellan, MD, PhD, is the former administrator of the Centers for Medicare & Medicaid Services (CMS), former Commissioner of the U.S. Food and Drug Administration (FDA), and current Duke University Professor and founding Director of the Duke-Margolis Center for Health Policy.
Noting it was the organization’s first in-person conference since February 2020, LDI Executive Director Rachel M. Werner, MD, PhD, welcomed attendees to the day-long event that took place in a Wharton School conference complex. (Click images for larger)
In a Q&A session after his presentation Werner asked McClellan how the IRA changes were likely to impact health equity. “The biggest impact,” he said, “is unquestionably coming from the Part D benefit changes that affects every expensive drug and will limit out-of-pocket payments. That’s the biggest thing that people are going to notice.”
The “Drug Pricing and Inflation Reduction Act” panel, consisting of five experts in their fields discussed the specifics of the IRA changes. They were (l to r): Holly Fernandez Lynch, JD, MBe, moderator, LDI Senior Fellow, and Assistant Professor at both the Perelman School of Medicine and Penn’s Carey Law School; Troyen Brennan, MD, JD, former Executive Vice President and Chief Medical Officer of CVS Caremark Corporation and current Adjunct Professor of Health Policy and Management at the Harvard T.H. Chan School of Public Health; Stacie Dusetzina, PhD, Professor of both Health Policy and Cancer Research at the Vanderbilt University School of Medicine; Meena Seshamani, MD, PhD, Deputy Administrator and Director of the Center for Medicare at CMS; and James McSpadden, MDiv, MA, Senior Policy Advisor at the AARP Public Policy Institute.
Emphasizing how high out-of-pocket costs prevent patients from benefiting from specialty drugs, Vanderbilt’s Dusetzina pointed out that 30% of the people who receive new prescriptions for cancer drugs that are covered by Part D but require tens of thousands of dollars in out-of-pocket payments, don’t fill those prescriptions.
Aside from promulgating the new policies, CMS’s Seshamani said there must be strong engagement in their implementation. “Take the example of the zero-dollar vaccine or the $35 insulin cap,” she said. “If someone on Medicare doesn’t know they can get their shingles vaccine at no cost, then we haven’t accomplished what we all want to accomplish. We have to partner and make sure these provisions come to life on the ground for all the people we want to serve.”
The conference’s second panel, “New Ways to Pay for High-Cost Drugs,” focused on alternative payment models for expensive specialty drugs. The moderator was Anand Shah, MD, MPH, LDI Adjunct Senior Fellow, Operating Advisor at Clayton, Dubilier & Rice, and former Deputy Commissioner of the FDA. The panelists were Rena Conti, PhD, a Dean’s Research Scholar and Associate Professor of Markets, Public Policy and Law at Boston University; Nancy Keating, MD, MPH, Professor of Health Care Policy and Medicine at the Harvard Medical School; and Jeff Marrazzo, MBA, MPA, Co-Founder and former CEO of Spark Therapeutics. Marrazzo appeared via Zoom and discussed the reimbursement strategies used for the 2018 launch of Spark’s LUXTURNA, a gene therapy treatment for a rare form of vision loss caused by a inherited genetic mutation. The one-shot drug was priced at $850,000, breaking the record as the country’s most expensive drug.
“The IRA is a watershed legal and regulatory framework over how we set prices for new drugs,” said moderator Shah as he opened the panel. “We shift our focus now to alternative payment models and how these paradigms have been thought through and deployed successfully with the goal of making drugs more affordable and accessible for all. These methods include subscription models, value based care, and bundling drugs with other medical services.”
“There are drugs, vaccines and other therapeutics that exist right now that can prevent or effectively treat diseases such as HIV, Hepatitis C, and diabetes,” said Boston University’s Conti (above, left). But they’re not getting to patients who can benefit from them. Why? Because our system prevents full and total access at an affordable price. Alternative payment models are needed to get either cures or effective therapies actually flowing down to real patients.”
The “Spotlight on Pharmacy Benefit Managers (PBMs)” panel opened with an introduction by LDI Senior Fellow and Wharton School Professor Lawton Robert Burns, PhD, MBA, about the often-controversial organizations that are intermediaries between public and private health insurers and employers, and drug manufacturers and pharmacies. The panel was moderated by Dan Gorenstein, LDI Adjunct Senior Fellow and Executive Editor and Host of the Tradeoffs podcast. Panelists included Angela Banks, MBA, MA, Vice President of Policy for the Pharmaceutical Care Management Association and Barak Richman, PhD, JD, Professor of both Law and Business Administration at Duke University.
“One of the most contentious issues of PBMs is the amount of rebates that they get from manufacturers — ‘if you want access on the formulary, you’ve got to give us a rebate,'” said Burns. “So how big are those rebates? They’re not disclosed. What happens to them downstream? That brings calls for transparency. Then there is the perceived threat that PBMs now pose because of their vertical integration with health plans, their own pharmacies, and their own provider networks. It’s a very complex landscape and even in Congress, most have no idea what these vertically integrated chains are all about. Meanwhile, both political parties are invested in the issue and are considering legislation to rein in PBMs.”
“PBMs generate $145 billion in value for the U.S. economy annually. And they do that primarily by negotiating with drug manufacturers and pharmacies for discounts,” said the Pharmaceutical Care Management Association’s Banks. “So, in the process of those negotiations with pharmacies, PBMs also develop performance standards for pharmacies and audit those pharmacies. Some of the things that come up in those audits include patient safety issues like improper storage or improper dispensing and other things falling into the lines of fraud, waste, and abuse. We know that there are billions of dollars in health care fraud across the United States annually and PBMs hopefully help curb a little bit of that.”
Moderated by Penn LDI’s Werner, the “Outlook on Drug Pricing: Access, Affordability and Innovation” panel included (l to r) Peter Bach, MD, MPP, Chief Medical Officer of Delfi Diagnostics and former Senior Advisor for CMS; John O’Brien, PharmD, MPH, President and CEO of the National Pharmaceutical Council and former Senior Advisor for Drug Pricing to the U.S. Secretary of Health and Human Services; James Robinson, PhD, MPH, Leonard D. Schaeffer Endowed Chair of Health Economics and Policy and Director of the Center for Health Technology at the University of California, Berkeley; and Adaeze Eneckwechi, PhD, MPP, Operating Partner at Welsh, Carson, Anderson & Stowe.
“When we think about the current US drug pricing problem and market based approach that we’ve taken, are we really at the logical conclusion of that approach?,” asked Werner. “Not even close is the answer, but generally directionally correct in terms of the movement on drug pricing,” responded Bach. “We have numerous defects in the system which are constituted almost at their core by misaligned incentives. And then all this stuff about PBMs is pretty hard to follow. They have all sorts of problematic incentives all the way through and into the structure of the Part D program.”
“The IRA isn’t the first cut into the companies that bring innovation to life,” said the National Pharmaceutical Council’s O’Brien. “I feel like we’re really close to hitting an artery. What is this going to do to innovation and development? It will cause people to move away from developing small molecule drugs. It’s also going to have a deleterious effect in cancer care. So, saying ‘we’re going to cut out half of your peak sales or just use the calendar, saying ‘you only have nine years from the approval of this drug’ is either going to affect the development of subsequent indications or potentially delay the launch of medicines that we know work.”
