The Fog of War (for MFP)

tl;dr-

• The Inflation Reduction Act of 2022 (which became public law in August, 2022) empowers the largest payer organization in the United States - the Department of Health & Human Services - to formally negotiate prices for certain pharmaceutical products starting in 2026

  • In addition to price negotiation, the IRA also heralds additional changes to US market access due to changes in Part D, additional manufacturer rebates, and changes to patient cost-share

• Three key factors of the new HHS price negotiation process will determine its direct impact on the life science industry:

  • The process by which HHS will select drugs for price negotiation (Sec. 1192);

  • The process by which HHS will determine its initial proposal on a product’s Maximum Fair Price (MFP) (Sec. 1194);

  • The process by which HHS will interact with life science companies to finalize the MFP (i.e. the negotiation itself) (Sec. 1194);

• While the IRA contains extensive detail around the process by which drugs will likely be selected & what information will be considered in MFP determination, the largest unknown currently is the ‘consistent methodology & process’ backbone to determine both the initial HHS proposed & the final MFP. (Sec. 1194 (b)(1))

• One possibility is that HHS simply defers to the MFP benchmarks detailed in the IRA (i.e. ‘the upper limit’)

• One possibility is that HHS will lean on current health technology assessment (HTA) / value assessment organizations active in the US as the foundation for its methodology; these include-

  • Institute for Clinical & Economic Review (ICER): a non-profit organization that conducts independent value assessments for pharmaceutical products which has grown in influence despite facing scrutiny surrounding its methodology

  • Innovation & Value Initiative (IVI): a non-profit organization consisting primarily of life science innovators & patient organizations building therapeutic-area specific value models

  • The Agency for Healthcare Research & Quality (AHRQ): A governmental agency that funds studies surrounding effectiveness of healthcare delivery & creates educational tools used by other stakeholders

  • Patient-Centered Outcomes Research Institute (PCORI): A non-profit agency authorized by the ACA in 2010 that funds selected clinical effectiveness research (CER) projects across a variety of healthcare areas

• Another possibility is that HHS will use an ex-US assessment methodology as the foundation for the MFP process; examples may include-

  • The AMNOG process (Germany): heralded the transition from Germany from a free-pricing market to an HTA / price negotiation market

  • The SMR / ASMR process (France): a long-standing process by the HAS that breaks down market access into two scores based on value; reimbursement based on absolute clinical benefit (SMR), and pricing based on comparative clinical benefit (ASMR)

• Whichever methodology HHS decides to utilize may have additional downstream effects for all healthcare innovators with reimbursement-based business models (colloquially, B2B); examples include-

  • The weighting certain evidence - historical pricing, clinical trial results, current standard of care, etc. - may have for market access based on the MFP process

  • How private payers may leverage MFP negotiation results for lives covered under the commercial book of business

  • The MFP process as a look into the future for digital health HTA (i.e. for digital therapeutics, new diagnostics that seek payer reimbursement, etc.)

  • Overall financial opportunity & subsequent decisions (i.e. go / no-go decision-making on a new innovation with a majority Medicare population, etc.)

***

I’ll be honest; one of the main reasons I wanted to write out my thoughts wasn’t just because this is a ‘big deal’ (I mean, it’s big enough that you see pieces like this or this or this … or this all over the place!) but because I read what I would consider to be a particularly hot take on the impact of price negotiation here. Basically, it’s apparently a nothing burger because … the MFP maximum set by the IRA is so steep that there is no room for pharma to negotiate upward (and ergo, the process is just like another discount)?

I’m sorry, come again? You know negotiations are bi-directional, right? Even if there’s a ceiling, that doesn’t mean there’s a basement …?

The IRA very clearly directs HHS to come up with a consistent methodology & process. While it is entirely possible that HHS can rest on its haunches and just use the lowest of the two IRA-defined benchmarks (quiet quitting!? har har), I’m not sure this is the most likely scenario. We know healthcare has consistently been one of the major areas of concern for the voting public and this isn’t likely to go away anytime soon. Even with a potential COVID-19 reputational bump, this perception challenge is more than likely going to result in the popularity of ‘biopharma hawks’ for political office. Do you think in that kind of political environment HHS within the next 3-5 years (i.e. by 2026 when the first negotiations are supposed to occur) is likely to ‘rest on its haunches and just use the lowest of the two benchmarks?’

Or do you think they’re going to push prices as low as they think they can reasonably defend - and put onus on the manufacturer to defend value?

For the record, I’m not a DC insider - and while my crystal ball is powerful, it’s not that powerful. However, as a strategist, I also think it’s incredibly short-sighted to assume that MFP negotiation outcomes will resemble ‘just’ a discount (i.e. discount minimum equates to final MFP) as the only possible future. It’s also not a useful perspective because if MFP negotiation outcomes really do end up being exactly the minimum discount defined in the IRA (based on competitive intelligence, CMS rulemaking on the process, etc.), then responding to the IRA because a numbers game. Yeah, it’s a complicated numbers game, but biopharma market access, trade, and distribution teams have been around long enough that it’s almost certainly solvable if MFP is ‘just’ a discount with clearly defined inputs. To put it a different way, if price negotiations do end up being a flat discount, the ‘cost of certainty’ i.e. cost of determining your market access strategy isn’t very high. At least it’s one less thing to worry about.

That cost is most certainly higher if CMS decides to do something ‘crazy’ - which, as we established from my blase prediction of the US political climate towards the biopharma industry a few paragraphs above - is likely significantly higher than zero. Any scenario in which the MFP process uses a more quantitative benchmark - like ICER and friends - means biopharma companies will have to re-evaluate their evidence generation strategy (especially for assets that are forecasted to be have heavy Medicare populations). A scenario where CMS decides to adopt a framework based on the French system, let’s say, rachets up this complexity dramatically. All of a sudden, organizations have to deploy a ton of resources - dedicated FTes, consulting fees, etc. - to pay for the cost of strategic certainty and that, frankly, sound like the fire drill to end all fire drills (from a corporate strategy perspective, at least).

Oh, and if you’re in digital health, medtech, or a provider, you still have to worry about these trends. While it was true 10 or 15 years ago that healthcare was pretty segmented - you had drugs, medical devices, hospital care / procedures, and primary care, for instance - the rapid proliferation of technology combined with rising systemic costs have resulted in all of these worlds colliding together. Certainly, you can see this in the finger-pointing rhetoric where every stakeholder in every public setting accuses the other of being the source of rising cost; these conflicts don’t arise if healthcare markets had remained generally isolated economically. So while this MFP process doesn’t impact your digital health company today, it doesn’t mean it won’t tomorrow. If anything, it may be a view into challenges your company may be tackling very soon.

But let’s bring it back - what should you do?

There are multiple valid approaches here depending on the company, ranging from assessing risk & purposefully pivoting (i.e. ‘away’ from Medicare) to a capabilities assessment to measure organizational readiness; whatever works best for your company will depend on your company’s circumstances. For me, however, I like to start tackling these questions with creativity.

Ask yourself - what future do I see? It can be as crazy or as conservative as you like; perhaps CMS builds a powerful robot that instantaneously calculates the MFP & threatens biopharma to adhere to it! Write it down. Then, close your eyes - take a deep breath - and do it again; this time, CMS has decides that they will outsource all decisions to Greece so they don’t have to make the decision anymore! Write it down. Keep going.

As you build these futures - either you yourself or you with your team - you’ll begin to see commonalities based on your experiences. No, CMS is unlikely to build Optimus Prime for price negotiation but … development of a third-party AI tool or calculator? We know Blue Button is a thing, we know there are data vendors; maybe that’s not that farfetched. No, CMS is unlikely to outsource decision-making to Greece but including ex-US pricing benchmarks? It came up during the Trump administration; may it make a return here? Slow & surely you’ll gain increasingly clarity on all the possible ways the future may arrive - and with it, strategic anchors to direct your thinking on what matters most.

Yeap, that’s right - I’ve just solved how to start building your market access (really, your anything) strategy. Just Black Mirror it & pick the futures that are most likely to come true, and the futures that you care about the most. Boom.

I’m joking. Mostly.

While we may have diverted towards some black humor towards the end, one thing is seriously certain; no one (yet) knows how this is going to play out. When faced with so many unknowns, it’s always a difficult trade-off to be too committed to the point of rigidity. Instead, be aware, be agile, and be flexible.

Be … Netflix, I guess?

-WY