While the impact of CMS price negotiations under the IRA will directly impact biopharmaceutical manufacturers, the act’s repercussions will also flow through to companies providing key inputs into drug product development, such as delivery technology. In this edition of Executive Insights, L.E.K. Consulting provides an overview of the IRA and discusses the implications for drug delivery technology providers.
Medicare negotiations will significantly decrease drug prices
Under the IRA, the Health and Human Services Secretary is authorized to select products that will be subject to a maximum fair price (MFP) negotiated by CMS. Manufacturers will be required to sell these therapies at no more than the MFP to any Medicare beneficiaries.
Most products covered by Medicare are subject to negotiation of an MFP after they have been approved by the Food and Drug Administration — for seven years in the case of small molecule NDA approval, or 11 years for biologics approved with biologics license applications (BLAs) — and MFP pricing is instituted two years later. CMS is authorized to implement an MFP for up to 100 Medicare-covered therapies by 2031.
Negotiations will begin with products on Medicare’s Part D program (10 subject to the MFP by 2026, with 15 more by 2027) before expanding to include both Part D and Part B drugs. While the MFP only applies to Medicare beneficiaries, commercial payers are likely to follow suit and renegotiate after CMS establishes the MFP.
The first wave of negotiated drugs is largely orals and injectables; the second wave likely will include inhalables
The first 10 drugs selected for 2026 Medicare negotiations represent around $30 billion in 2022 net revenues (roughly $50 billion in gross covered Part D prescription drug costs from June 2022 to May 2023). These drugs are marketed by established pharmaceutical companies and span therapeutic areas. Some may consider the list to be a first 11, as CMS grouped two of Novo Nordisk’s insulin brands as a single product. These insulins, Fiasp and NovoLog, were approved under separate BLAs and differ in the inclusion of vitamin B3.
These initial drugs were selected in a largely “mechanical” fashion, picking eligible products with the greatest Medicare Part D gross spend over the prior year while excluding those with an existing generic/biosimilar. Applying a similar logic, we have predicted drugs that may comprise the next 15 selected.
These products span dose forms and delivery technologies. The first 10 drugs selected include about three injectable therapeutics (grouping the insulins), with autoinjector, pen and prefilled syringe options, representing about $11 billion in net revenues at risk (see Figure 2). Some of these products include multiple forms. For example, the insulins (Fiasp and NovoLog) are offered as prefilled pens, cartridges (compatible with pens or pumps) and vials (see Figure 3A).
