The Inflation Reduction Act Puts Real-World Evidence Front and Center
Chief Executive Officer
Lowell Schiller, J.D.
Chief Legal and Regulatory Officer
The drug price negotiation provisions of the Inflation Reduction Act (IRA) will significantly change the American pharmaceutical market, and the Centers for Medicare & Medicaid Services (CMS) implementation is proceeding rapidly. While many of the IRA’s impacts remain to be seen, it is becoming increasingly clear that high-quality real-world evidence (RWE) — such as analyses of health records, claims data, and registries — will play a critical role. In fact, one of the most evident impacts the law will have is to increase the use of RWE across multiple use cases.
Here’s what we know:
- In September, CMS will name the first drugs subject to price negotiation, which will initiate a process to determine the “maximum fair price” (MFP) that Medicare (Parts D and B) will pay for those drugs. CMS published initial guidance explaining how it intends to conduct the price negotiations, including what information will be considered when setting the MFP.
- Each year, qualifying drugs and biologics that have been approved for at least seven or eleven years, respectively, and have no generic or biosimilar competition will be ranked according to CMS spend. The most expensive products will then be subject to negotiation, resulting in cumulative price controls for a large portion of the market.
- The MFP is capped at a percentage of the drug’s non-federal average manufacturer price (i.e., the price paid by wholesalers for non-federal purchasers). Still, after engaging with the product’s manufacturer, CMS can lower the price based on specific statutory criteria.
- The recent CMS guidance elaborates on what evidence will inform this negotiation and specifically identifies high-quality RWE as having the potential to affect pricing.
Given what we know about the negotiation process, it is not a stretch to say that developing and presenting strong RWE will be one of the most tangible ways stakeholders, including drugmakers, patient groups, and others, can inform the negotiated price.
Demonstrating Value in the Negotiation Process
By law, CMS must consider certain factors in the negotiation process, many of which (i.e., manufacturer costs and sales data) look to reportable figures that are relatively cut and dry. In contrast, the negotiation leaves more room for interpretive debate around other factors — namely, how the product compares against alternative treatments. RWE is a natural source of evidence to support this analysis. Here’s why:
- By the time a product becomes negotiation eligible, it will have been marketed long enough to generate significant real-world data. And, because post-market randomized trials comparing therapeutic alternatives — which can be very costly to run — often are not available, RWE is uniquely positioned to support these negotiation elements.
- Additionally, the guidance explains that RWE will help inform which products CMS will treat as therapeutic alternatives. This determination is vital because CMS will use the alternative products’ price as the starting point from which it will adjust the negotiated price up or down based on relative clinical benefit. RWE will also help inform comparisons between negotiated products and their therapeutic alternatives. An analysis of differences in real-world clinical outcomes or the overall cost of care could result in adjustments to the negotiated price.
Of course, not all RWE is created equal. CMS has said it’s seeking high-quality RWE that is methodologically rigorous and relevant to Medicare populations. There are tools available to generate RWE that will meet this bar, like STROBE, SPACE/SPIFD, and HARPER, but stakeholders should beware that far too much low-quality RWE is still being produced. To maximize influence, stakeholders should leverage the tools to create high-quality studies and be prepared to differentiate the good from the bad.
Product and Portfolio Planning
The IRA framework also increases the importance of RWE in the broader product development process. By establishing a limited window between product approval and negotiation eligibility, the IRA will likely affect the economic considerations around research to support label expansions, such as new indications or populations. Particularly later in a product’s life cycle, manufacturers will be disincentivized from conducting expensive, large-scale randomized trials in the face of impending price control.
Manufacturers may pursue expansions on a timelier and more cost-effective basis for products incorporating RWE into their label strategy. While RWE is not a substitute for randomized trials, products that are good candidates for leveraging RWE — for example, because a randomized trial is not ethical or feasible — will likely be more attractive under the new incentive structure. Product developers will want to make these assessments early and across their development pipelines to optimize resources.
Although CMS has substantial experience evaluating medical products, such as through coverage with evidence development, negotiating pricing with manufacturers is new to the agency. Other organizations, such as health technology assessment bodies, have already begun leveraging RWE in price negotiations, and their experiences may be instructive for CMS and manufacturers alike.
While questions about the negotiation process remain, the importance of RWE is evident. The time has come for stakeholders to prepare strategies focusing on high-quality methods because RWE will be one of the most influential ways to shape pricing negotiations going forward.
If you would like to speak with one of our experts on this topic or any other issues related to RWE policy, please contact us.