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You only get one bite at your first price apple
Innovators often focus on the technical, IP, and regulatory aspects in their quest for a successful product offering. While each of these factors are key components, market access is the single most important factor of commercial success in the U.S. market and must be a research and development imperative as well as a commercial imperative. A detailed understanding of the evolving U.S. payer marketplace should be a part of your research and development plans as early as Phase I.
By now you’ve also undoubtedly heard that the IRA includes three components focused on prescription drugs: establishment of a Drug Price Negotiation Program, rebates on drugs paid under Medicare Part B or D having price increases that exceed inflation, and a redesign of certain Medicare Part D benefit provisions. How are these relevant to your market access?
The following four foundational questions should frame your early thinking.
- Indication mix and order: What indications are you studying for your molecule, and what is the order in which you are currently planning to pursue study and approval?
- Payer mix: What is the payer mix for each indication (e.g., Medicare, Medicaid, or a commercial payer)?
- Dosing: What is the dosing for each indication and in what product presentations? (e.g., weight-based vs. fixed amounts, oral vs. injectable, single vs. multiple strengths/concentrations)
- Pricing: What is the pricing strategy for each indication, and should you revisit [based on that strategy] the order in which you plan to pursue study and approval?
A call to order
A pre-commercial product often has multiple possible uses in development. Where that is the case, it is important to think through each possible indication's coverage, reimbursement, and pricing profile, and the order in which the uses are expected to be commercialized.
It is critical to recognize that the first indication approved and launched can lock in and limit the coverage, reimbursement, and pricing options available for subsequent indications. And now, in a post-IRA world, that first approval also is likely to start the IRA’s nine- (NDA) or thirteen-year (BLA) clock that determines when price controls can be imposed. Thus, it is important to consider whether subsequent uses can be commercialized using different FDA approvals or different product presentations (different concentrations, strengths, or routes of administration, for example) to generate the possibility for market differentiation and flexibility down the road. A proactive feedback loop involving reconsideration of both FDA and coverage concerns is an important tool for success.
Why Medicare matters to your market access
While employer-based and other payers make up roughly half of U.S. prescription drug spending, it is ultimately Medicare that sets the standard for how coverage and reimbursement is determined for both public and private payers. Even if you don’t expect a large Medicare market, the Medicare rules tend to drive how Medicaid and even commercial markets approach product payments. Medicare has different rules regarding the coverage and reimbursement of drug products, which generally depend on whether a drug is going to be physician-administered or self-administered.
Physician-administered drugs are generally covered under Medicare Part B, which sets the primary standard for coverage that other payers in the U.S. market will follow. Physician-administered drugs covered under Medicare Part B benefit are reimbursed at a rate based on average sales price (ASP), which is generally the average commercial price in the quarter, as calculated and reported by a product's manufacturer to the Centers for Medicare and Medicaid Services (CMS). Medicare assigns a billing and payment code to each drug product, and all versions of the product marketed under a given New Drug Application (NDA) or Biologics License Application (BLA) are assigned to that code and reimbursed using a weighted average of the ASP for those versions. Drug sponsors expecting Part B coverage and payment for a drug will have less flexibility in pricing the drug product if different indications and different versions of the same product are approved under the same drug application, which is one reason why it is important to think about whether a given product will have different uses and prices early in the development process.
By contrast, most self-administered drugs, including most drugs dispensed by a retail, mail, or specialty pharmacy, are most typically covered under Medicare Part D. For most classes of drugs, Medicare Part D plans have considerable discretion with respect to which drugs they cover, meaning that a pharmaceutical manufacturer may need to negotiate with Part D plans to obtain coverage for its drug, typically by offering a rebate. Each Part D plan has its own payment and patient cost-sharing structures, subject to annual CMS approval, as well as the ability to impose utilization management restrictions on the drug, potentially creating access barriers.
Treating Medicare beneficiaries? New liabilities and a discount
To these baseline pricing considerations, the IRA adds an entirely new rebate liability for manufacturers in the form of Medicare Part B and Part D inflation rebates. These provisions were enacted in an effort to control price increases by imposing inflation-based rebates on most innovator drugs paid under Medicare Part B and D.
The IRA also redesigned the Medicare Part D benefit, lowering the beneficiary out-of-pocket threshold and replacing the current manufacturer “coverage gap” discount program with a new manufacturer discount program. Under the new manufacturer discount program, manufacturers participating in Part D will be required to enter an agreement to provide certain discounts off the Part D negotiated price for applicable drugs dispensed to applicable beneficiaries. Applicable drugs include Part D drugs approved under an NDA or licensed as a biologic or biosimilar biological product. In addition, although initially excluded, “specified small manufacturers” will phase in to the manufacturer discount program, meaning that it behooves future manufacturers of all sizes to understand the implications of these provisions.
The bottom line? Optimistic future price increases that outpace inflation won’t save you. The first price set for the first version of a product sets the pace.
The rebate effect
The Medicaid program also provides drug coverage and the pricing requirements and is particularly relevant to products for treating pediatric populations. While Medicaid often runs secondary to payment from Medicare, many manufacturers participate in the Medicaid Drug Rebate Program (MDRP) because participation in the MDRP is a condition for coverage of a drug under the Medicare Part B program.
Medicaid is all about the rebate, which is calculated quarterly and tied to drug’s market price, as defined by its “average manufacturer price” (AMP) and “best price”. Distinct pricing data, and therefore distinct rebate amounts, are calculated for each dosage form and strength of each distinct drug, using its unique NDC-9s drug code as a proxy. A lower “best price” to the commercial market will result in a higher rebate to Medicaid. In addition, the Medicaid rebate amount also includes an add-on “additional rebate” for price increases that outpace inflation. Thus, the first price set for the first version of a product may end up impacting the Medicaid rebate for the drug throughout its lifetime. Indeed, this Medicaid additional rebate served as the model for the IRA’s new inflation rebates on Part B and Part D drugs, outlined above.
Manufacturers that join the MDRP are also required to participate in the Secretary of Veterans Affairs Federal Supply Schedule (VA/FSS) program and the 340B Drug Pricing Program. Under the 340B program, a manufacturer agrees to sell its products to certain safety-net providers at no more than a statutorily-defined “ceiling price”. This ceiling price is tied to the product’s Medicaid drug rebate amount. The VA/FSS program imposes a different type of ceiling price on certain sales to the federal government and has its own set of price reporting requirements.
It is important even for pre-commercial companies to understand that the coverage and price reporting requirements under each of these programs will significantly impact a drug’s reimbursement rates and overall commercial strategy.
There’s an IRA impact, even if you’re small (now)
Drug Price Negotiation Program
The IRA established a “Drug Price Negotiation Program” (DPNP) that seeks to lower the prices of certain high Medicare spend drugs without generic/biosimilar competition. Under the DPNP, the Secretary of Health and Human Services (HHS) will select a specified number of drugs for negotiation each year, and the manufacturer of a drug selected for negotiation will be required to offer a “maximum fair price” (MFP) for such drug with respect to Medicare beneficiaries. The DPNP applies to drugs under Medicare Part B and Medicare Part D.
Qualifying single source drugs – which are certain NDA drugs at least seven years post-approval by the selection date, certain BLA biologics at least 11 years post-licensure by the selection date, with no generic/biosimilar on the market (an “authorized generic drug” does not count) – are eligible for consideration in the program. In contrast, drugs indicated to treat a single orphan/rare disease are exempt from the program.
In addition, while “small biotech drugs” are ineligible for selection for negotiation for initial price applicability years 2026, 2027, and 2028, the program has no such restrictions for future years, so it is important for today’s pre-commercial companies to understand the implications of these provisions.
The key takeaway for start-up companies and established pharmaceutical companies alike is that a product’s first FDA approval starts a potential nine- (NDA) or 13-year (BLA) clock for “negotiation” and has broader implications for government programs beyond Medicare. This makes it even more important to understand which indications, dosage forms, and product strengths you pursue for your molecule, and in what order.
Even today’s “small” manufacturers will ultimately phase in to both the DPNP and the manufacturer discount programs.
The future is now: what your investors need to know
We have mapped these considerations into a framework to help guide your discussions with investors. Starting with your products that have single agent activity, map the foundational questions:
What are the indications in order of expected commercialization?
Dosage form and strength, route of administration and expected product presentation(s)?
Take a stab at mapping out the information below and then discuss it with a market access professional.
Better yet, schedule some time with Alice or Beth while at the Biotech Showcase (click here) and let them talk you through any high level factors you might want to consider. Analyzing these questions should be a key component of your lifecycle management assessment in appropriately valuing your pipeline and advancing your products toward the market.
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Authored by Alice Valder Curran and Beth Roberts.