Saturday, June 22, 2024

Optimizing Medicare Drug Pricing: Lessons from International Models Under the IRA

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For the first time, the Inflation Reduction Act (IRA) has empowered the U.S. government to set prices for certain drugs in Medicare. Similar to many countries with government-run healthcare, the IRA outlines evidence standards for setting these prices. However, policymakers and stakeholders must be cautious to avoid the pitfalls faced by other countries. The draft guidance from the Centers for Medicare and Medicaid Services (CMS) risks exacerbating these issues rather than solving them, but there is still time for revisions.

In any centralized price-setting system, including those using health technology assessment (HTA), there are trade-offs. Countries with such systems often experience longer waits for new medicines and fewer options on their national formularies compared to Medicare. While the IRA and its price-setting program are in place, CMS needs to adopt a transparent and consistent approach, considering what value to patients truly means. Clear definitions of valuable evidence would encourage drug companies to invest in demonstrating the worth of their products.

The IRA directs the Centers for Medicare and Medicaid Services to set prices below a ceiling based on various data elements but offers broad flexibility in how these elements are considered. CMS has not been transparent about the weight it assigns to each data point, such as therapeutic benefit versus manufacturing cost. This lack of clarity leaves biopharmaceutical companies and investors uncertain about which data types are valuable. If CMS prioritized therapeutic benefit, it would drive more investment in relevant evidence generation.

Improving Transparency and Patient Engagement in Medicare’s Drug Pricing Process

Other countries have struggled with transparency and predictability in their HTA processes. For instance, in South Korea, the National Health Insurance Service’s pricing and access decisions are not publicly shared, leading to controversial reimbursement outcomes. CMS risks making a similar mistake by not confirming what will be included in the Maximum Fair Price decisions explanation in March 2025.

Patient engagement involves more than just allowing feedback at pricing hearings; it requires assessing and prioritizing patient-relevant outcomes. CMS has provided avenues for verbal and written feedback but has not clarified how this input will be used. Lower-than-expected participation in listening sessions suggests that stakeholders do not feel their feedback is valued. Effective patient-centric value assessment should include metrics that matter to patients, such as the ability to live independently or with fewer side effects, and give these outcomes significant priority.

CMS’s current approach, which requests data irrelevant to the drug’s value to the health system, such as partial R&D costs, falls short. HTA systems worldwide generally do not use R&D data, except in limited cases like Japan’s cost accounting method for medicines with no alternatives. The Centers for Medicare and Medicaid Services’s lack of clarity on weighing input costs versus drug efficacy evidence fails to meet the statutory requirement for a consistent methodology.


CMS’s Opportunity to Enhance Medicare Drug Pricing Post-IRA

Given CMS’s price-setting evaluation occurs 7 to 11 years post-approval, it has a unique opportunity to use real-world data. Countries using real-world evidence in value assessments do so selectively, such as Germany with rare disease medicines. The Centers for Medicare and Medicaid Services, as the largest payer in the world’s biggest pharmaceutical market, could leverage extensive real-world data to explore and share value elements like treatment adherence, failure rates, and combination therapy use, focusing on patient-relevant endpoints.

The IRA required CMS to quickly introduce the first round of price setting, allocating $3 billion with little guidance on spending. CMS now has a significant opportunity to refine the process in future years, having recently released draft guidance for the next negotiation program and solicited feedback on various issues. This creates a chance to learn from other countries’ mistakes and revise the process to be more predictable and responsive to the outcomes important to Medicare beneficiaries.

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Resource: Real Clear Health, May 30, 2024

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