5 Insights Following the IRA’s First Round of Price Negotiations

In August, the Centers for Medicaid and Medicare Services (CMS) published the maximum fair prices (MFPs) for the first ten drugs impacted by the Inflation Reduction Act’s (IRA) Drug Price Negotiation Program. This program is one of several provisions within the IRA intended to lower prescription drug costs for people with Medicare and reduce drug spending by the federal government. While it will likely be some time before we’re able to see the full outcomes of the legislation, with MFPs for the first round of negotiated drugs officially set, changes are in motion that will require healthcare players to anticipate and adapt to a rapidly shifting and evolving landscape.

I sat down with Fauzea Hussain, VP of Public Policy at McKesson and Ashwin Singhania, Partner/Principal of Life Sciences Strategy at EY-Parthenon, Ernst & Young LLP, to discuss this first phase of the roll out, some of the big key takeaways so far and what questions remain top of mind as the IRA continues to move forward. The lively discussion led us to the below five key insights.

Insight 1: IRA cost-savings have likely been overstated, and any evaluation of impact should go beyond pricing and spending.

Following the August announcement of MFPs for the first ten negotiated drugs, CMS claimed Medicare would have saved $6 billion if the negotiated prices had been in effect in 2023. However, it’s unclear if these savings will be fully realized, as the 2023 historical benchmark does not adequately reflect the market dynamics expected for these products in 2026 with regard to competition or loss of exclusivity.

More importantly, the actual savings for patients remain unclear. While Medicare Part D plans must cover negotiated drugs, there are no requirements for how they are covered or on what tiers – meaning there’s a potential for situations where patients actually end up paying more out-of-pocket for these drugs, despite cost savings to Medicare.

One thing is abundantly clear: as we continue to discuss the IRA, we will need to go beyond pricing and spending to understand the true scope of its impact and value. This should take into consideration broader issues, such as influences on innovation, and will require balancing cost relative to outcomes – informed by patient perspectives.

Insight 2: Healthcare constituents should be working to operationalize changes in advance of January 1, 2026 – despite remaining unknowns.

Shortly before our discussion, CMS released final guidance on requirements and parameters for the second cycle of negotiations. While there’s still a lot of unknowns, what we do know is that stakeholders will need to navigate many workflow pivots and enact operational changes in a relatively short amount of time.

Perhaps most notably, CMS has finalized the role of the Medicare Transaction Facilitators. All entities must use the CMS transaction facilitator for data validation, while use of the CMS payment facilitator is voluntary. Accompanying this new system are new timelines for payment requirements (14 days for manufacturers to reimburse pharmacies) and significant amounts of new data that will have to be collected and processed. All of this will necessitate entirely new workflows and processes to help ensure the proper flow of the transaction cycle.

These changes will almost certainly take significant time to roll out. And although questions remain – including legal challenges underway – waiting to implement new processes is only likely to make for a more difficult transition. With this in mind, pharmaceutical companies and other healthcare constituents should plan to have a solution for the Medicare Payment Facilitator and Medicare Data Facilitator in place by the start of January 2026, and begin activating their teams accordingly.

Insight 3: Expect that operational changes required by MFP will have implications for patient access.

As previously mentioned, drug pricing is only just a part of how the IRA is likely to impact patients. What we’re seeing now, based on the final guidance from CMS, is that operational changes required by MFP are likely to have unintended consequences for patient access.

One particularly concerning area is the expectation for pharmacies to front the payment for impacted drugs, waiting at minimum 3-4 weeks for the anticipated MFP refund. Based on this, estimates from the National Community Pharmacists Association suggest that the average community pharmacy will have to float over $27,000 every month to stock these drugs.^[1]National Community Pharmacists Association, Independent Pharmacies Reluctant to Stock Drugs in Medicare Negotiation Program, New Survey Shows, Oct. 15, 2024. Collectively, among these entities and long-term care pharmacies, the cash flow effect would be around half a billion dollars every month for just the first year of the program.^[2]National Community Pharmacists Association, NCPA releases member summary on Medicare price negotiation final guidance, Oct. 24, 2024. An October survey found that over 90% of community pharmacies are considering not stocking MFP drugs as a result of this economic pressure – meaning patients could lose access to important medications in their communities.^[3]National Community Pharmacists Association, Independent Pharmacies Reluctant to Stock Drugs in Medicare Negotiation Program, New Survey Shows, Oct. 15, 2024.

There are also concerns about future impacts to access, either stemming from a loss of innovative new treatments or delayed access due to indication sequencing.

Ultimately, the industry should be prepared to address potential medication access challenges and help break down barriers for patients to uncover the best possible outcomes.

Insight 4: The industry should start preparing now for additional challenges with the introduction of Part B in 2028.

While we won’t see the first negotiated Part B drugs until 2028, it’s something we’ll watch closely given the complexities surrounding many of these therapies. The operationalization of these changes remains a subject of speculation and debate, especially as to how they will be put into practice. While some of the current guidance can likely be adapted to Part B, many provisions are not directly applicable due to the vast differences between the benefit designs.

One of the biggest questions for Part B is how this might impact patient cost sharing calculations. This problem is more easily solved under the Part B inflationary penalty program, where Medicare can calculate a cap on patient cost sharing because the inflationary adjusted average sale price (ASP) is known. But with the negotiated pricing provision, there’s a potential for variation in the ASP that would make it difficult to ensure accurate patient cost sharing. One potential solution might be to operationalize the MFP as a retrospective rebate between the manufacturer and the CMS. This would stabilize ASP, allow for capping of patient costs similar to the rebate program, and mitigate provider and patient disruptions. This is all speculation for now, but it’s worth monitoring in the coming years.

Insight 5: Tracking MFP trends at the state level will be important, especially for preventing access challenges.

While the federal Medicare Negotiation program has operational direction established by CMS, it’s currently unclear how MFPs will be adopted and implemented by the states. This could happen as part of the state Prescription Drug Advisory Boards or separately, and how it comes together will have a real impact across the value chain.

For instance, how are pharmacies going to be made whole from acquisition costs to reduced payment? Is there a refund? If so, who calculates it and manages the necessary data and payment flows?

This creates uncertainty for providers and patients – and ultimately is likely to disrupt patient access. Continuing to track state-level trends can help the industry better prepare and act, if needed, to prevent and remedy access challenges.

Final Thoughts – A Call for Collaboration

At the end of the day, the collective goal is to help people get on the right therapies and continue to help them stay on their therapies so that they can achieve a healthier outcome. The IRA represents a new framework we must operate within to make this happen and it will require collaboration across the industry to help ensure minimal disruption to patients. In summarizing our discussion, I think Fauzea said it best when she noted:

“We’re all trying to get the right treatment to the right patient at the right time. If we can all commit to that moving forward, we can do best by our patients and the system more broadly.”

To hear our full conversation, including additional insights into the new CMS guidelines, watch the full webinar recording.