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How will the Inflation Reduction Act Impact Evidence Needs for Pharmaceutical Companies?

Kathryn Cowie

Kathryn Cowie

April 3, 2023

The IRA is shaking up how drug companies and insurers set prices. Increasingly, reimbursement is now directly connected to the proven clinical efficacy of therapies. These companies––and their data providers––can take steps now to generate, store, and update evidence to prepare for health technology assessment in the era of the IRA.

About the IRA

The Inflation Reduction Act (IRA) passed in August 2022. Among other provisions, it permits Medicare, the U.S. government body that provides health insurance coverage for eligible participants, to negotiate drug prices for a select amount of drugs. Medicare Part D, which covers the cost of drugs delivered in outpatient setting, will begin negotiating prices in 2026. Negotiation-eligible drugs will be selected from the fifty drugs with highest Medicare Part D spending. 

The IRA provides limited guidance on how Medicare will implement drug price negotiations, leaving drug manufacturers in the dark. However, in March 2023, the Center for Medicare & Medicaid Services (CMS) published information on how it will select negotiation-eligible drugs and what data will be considered in negotiations. Drugs less than nine years old, rare disease drugs with orphan designation, and small biotech drugs are excluded. 

Evidence in the Age of Price Negotiations

As the CMS adopts the role of value-assessor (and sets the maximum price for eligible molecules), drug manufacturers will need to provide evidence supporting the efficacy and safety of their drugs, as well as the unmet clinical need.  Poor evidence management, and lags in updates to evidence, will place drug manufacturers at a disadvantage to competitors. 

Health Technology Assessment (HTA) is the evaluation of a medical intervention’s health and economic benefit to patients and to society. In the United States, no central agency has performed HTAs to determine drug or device reimbursement. However, health insurance payers and pharmacy benefit managers increasingly use the results of HTAs to inform drug coverage decisions. Over 60% of payers implement value-based pricing, according to a 2019 payer survey.

The CMS announced in March 2023 that it will accept data from stakeholders on the clinical benefit, including comparative-effectiveness research, the unmet medical need, real-world evidence, and the impact on special populations to inform price negotiations. 

To ensure appropriate reimbursement for eligible therapies by Medicare and by all payers in the United States, pharmaceutical companies must prepare evidence for HTAs. In Europe, too, regulations taking effect in 2025 increase the use of HTAs and require pharmaceutical and device manufacturers to submit clinical data for these HTAs. Clinical trial evidence alone will not be sufficient to convey a drug’s value.  Epidemiological data, comparative effectiveness, burden on health system, and subgroup analyses will impact drug price setting and sales volume, to a greater extent than ever before.

Who Will Determine Price Setting Methods?

The CMS, in negotiating drug prices, will likely use the results of HTAs to inform their pricing decisions. It is unclear whether the HTAs will be performed by independent bodies such as the Institution for Clinical and Evidence Review (ICER), a non-profit watchdog group, or if HTAs will be performed in-house at the CMS. The CMS might import pricing based on the maximum-allowable prices set in foreign countries through reference pricing. 

Challenges Ahead

Research tools enable drug companies to generate large amounts of clinical evidence, such as clinical trial data, real world evidence from health records, economic data, and published literature reviews. Identifying the signal from noise, and managing expanding repositories of clinical evidence, poses a challenge. To ensure fair reimbursement for value, it will be critical for drug manufacturers to provide clear, traceable, updatable evidence to the CMS, and to other payers implementing value-based pricing.

Evidence requirements are ever-evolving. The CMS intends to release a guidance, the Negotiation Data Elements ICR, describing the relevant data that drug manufacturers and public stakeholders will submit in negotiations. As a pharmaceutical company,  you can prepare for the upcoming evidence requirements by synthesizing all current evidence on your therapy and developing a living evidence strategy to incorporate new evidence as it emerges.

How Nested Knowledge Can Help

Nested Knowledge’s evidence synthesis software is purpose-built for the exact evidence synthesis process demanded for HTA. In addition, Nested Knowledge is used by ICER and the Evidence-Based Practice Center ECRI, both of whom are leaders in researching the value of healthcare interventions. Why do they love Nested Knowledge? The software is central, updateable, interactive, and transparent. One platform houses your economic data, epidemiological studies, and your comparative effectiveness research, such as literature reviews and network meta-analyses. By employing a “living research” paradigm––where evidence is rapidly updatable through direct connections to databases––Nested Knowledge’s software also ensures that the data informing your HTA (and therefore, the data that will determine pricing on your therapy) is complete and up-to-date at all times.

Furthermore, in contrast to competing evidence synthesis software, Nested Knowledge automatically generates interactive data outputs to engage stakeholders. Nested Knowledge is designed to be transparent, traceable, and reproducible. Research integrity and interoperability take priority. As Medicare and other payers demand comprehensive clinical evidence, Nested Knowledge will prepare you to show your value and gain the trust of payers. 

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