A quick thank-you to Ian Lopez from Bloomberg Law and Jo Walker from the Evidence Base for including my thoughts in their analyses of the big IRA reveal. It’s clear no one has all the answers, but I appreciated the opportunity to describe what I was seeing.
I feel duty-bound to note that Kalama Harris’ health policy priorities are now out there in public. I noted on Friday that she was giving a big speech outlining her plans, and that speech did indeed happen. Still, there doesn’t seem to be much in the way of specifics. (Modern Healthcare has the best summary. Harris’ low-on-details speech is here. Here’s the press release laying this out.)
She wants to expand $35 insulin (fine, whatever, doesn’t really matter at this point), bring the $2,000 out-of-pocket cap to commercial insurance (lol), and go after PBMs (join the club!).
She also wants to boost the IRA in by “accelerat[ing] the speed of negotiations”, which I assume means framed as “increase the number of medicines being ‘negotiated’ in each year.” This was part of the Biden agenda, laid out in the State of the Union address, and it always struck me as odd, but I don’t know if I’ve ever been explicit about why this feels so meaningless. So here’s my stab:
Within the next 18 months, the price control effort for 40 of the highest-spend drugs in Medicare will be completed or underway. If you look at the number of medicines eligible for price controls, the pickings get real slim much beyond 40, meaning that the impact gets less and less significant as smaller and smaller medicines get targeted. I’m guessing that increasing the number of medicines won’t make much of a difference, financially. But I bet it sounds great on the stump.
Now, setting prices earlier would absolutely leave the mark. But I don’t think that’s what we’re talking about.
By now, the narratives on the Medicare price-setting milestone are pretty clear: big (but meaningless) cuts from list prices, some cuts from net prices (though nearly impossible to parse at the drug level), wildly variable effects on patients (especially considering the intersection with the $2,000 cap/redesign).
I expect there will be a lot more time spent on those narratives. They’re all important, but I don’t have a lot to add there right now.
Instead, the game theory of the actual back-and-forth between companies and the government has been on my mind all weekend, based on some fascinating reporting** in the Wall Street Journal that I haven’t seen elsewhere.
Here’s the bit that’s stuck in my brain:
In a sign of how contentious the process was, CMS and the manufacturers didn’t reach an agreement with drugmakers on five of the drugs until after the meetings. In those cases, the drug companies accepted the government’s final offer. The companies faced high excise taxes if they refused.
“Other prices were agreed upon during in-person meetings. Four prices offered by manufacturers were agreed to by CMS while the other was offered by CMS and accepted by the drug company. CMS didn’t identify when in the process companies accepted new prices.
Medicare’s Drug-Price Talks Are About to Get More Heated, Wall Street Journal, Aug. 16
So in five cases, the companies never acquiesced to the government’s final offer price, and the final MFP was basically just imposed over protest. (This is why I’m still avoiding the word “negotiated” here. The cost of walking away is so unfathomably high that companies really had an offer they couldn’t refuse.)
The company that “accepted” the government’s offer in the room probably made the same calculus, just without dragging things out.
But in four cases, the companies floated a number to CMS, and CMS was like, “Sure!”
It’s a fascinating division, and I’m curious about the difference between the six meds that went the distance and the four where CMS took the company number. Were the companies in the six processes that went the distance just more willful? Were those six prices less defensible in the eyes of the manufacturers? Were drugmakers that had their prices accepted surprised? Or was it something about their argument that made the difference?
And what does this mean for the next round? Are there benefits — to either side — from playing “nice”?
Right now, these are all rhetorical questions. But, in theory, we’ll get some answers when CMS releases its summary of the negotiations, due by March 1. Here’s what the CMS guidelines call for:
Public Explanation of MFP: CMS will publish a public explanation of the MFP for initial price applicability year 2026 for each selected drug by March 1, 2025, that will include a narrative explanation of the negotiation process, the agreed-upon MFP, and redacted information regarding the section 1194(e) data received, exchange of offers and counteroffers, and the negotiation meetings, if applicable.
Medicare Drug Price Negotiation Program: Revised Guidance, June 30, 2023
I know lots of folks will be looking to the March 1 disclosure to see how CMS weighted various elements of value, but assessing the game theory elements will be interesting in its own special way.
** If you missed this, too, don’t feel bad. The details here weren’t flagged until paragraph 26 of the WSJ story. The lede was buried, as they say.
One of the low-key themes that has run through coverage of the IRA is that pharma companies can’t be trusted to assess the impact of the law. So it’s notable that the head of ICER — an organization that usually seem as pharma’s ideological foe — has a STAT piece out affirming one of industry’s talking points: unless the government intervenes, there is a very real risk of PBMs will make access to price-controlled medicines harder, not easier. When ICER and industry agree on something, that something is worth taking seriously.
At some point, we’re going to have to talk about Fred Ledley of Bentley University, whose team put together two weirdly bad papers about how biotech — and therefore clinical development as a whole — wouldn’t be affected by the IRA. He had a letter to the editor in STAT over the weekend (replying to a reply to a First Opinion from a couple of weeks ago) reiterating the general point that pharma won’t take a hit from the new law. But that letter is weird, too, seemingly ignoring his own argument that pharmaceutical companies (but not, per his papers, biotech) do in fact reduce R&D when faced with revenue pressure.
The biggest untold story in American business journalism is the not-so-slow death of the pharmacy industry. I feel like the first national journalist to really set their typewriter to telling that story is going to get nominated for a Pulitzer. Because it’s not just small pharmacies felling the pressure. Big chains are experiencing a lot of pain, too. This CNBC piece lays out the current state of things well, and I’m hoping we get more attention here.
Header image via QOR Museum on Flickr.
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