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Breaking Down the Inflation Reduction Act: Q&A with Alice Valder Curran, Partner at Hogan Lovells


Valder Curran discusses recent developments with the IRA.

Alice Valder Curran

Alice Valder Curran
Hogan Lowells

Alice Valder Curran, partner at Hogan Lovells, spoke with Pharmaceutical Executive about the industry’s reaction the Inflation Reduction Act (IRA). The act comes with certain price control provisions that have sparked a significant reaction from people across the industry, but negotiations are ongoing and Curran breaks down the current situation.

Pharmaceutical Executive: What has the reaction to the IRA been from the pharma industry?
Alice Valder Curran: Industry’s reaction has evolved in the period since the statute’s passage in August 2022. The price negotiation provisions are incredibly complicated, and so in the early days post-enactment much of the concern was fueled by the unknowns. Industry recognized that the IRA’s price control provisions could have significant negative impacts on innovation and investment decisions, because that is just what price controls do, but the precise contours of how those impacts might play out took some time to come into fuller focus. My advice to companies has been that they first think about how the IRA impacts their own products, and that once they get a handle on that, a company should think about how the IRA impacts competitor products. Lastly, once a manufacturer thinks through those scenarios, it should think about how the IRA impacts market dynamics more broadly. Industry has used the past 19 months to do just that, which is why we are now seeing concrete negative impacts play out in real time, as manufacturers identify products or indications they are delaying or no longer pursuing, for example. As the price negotiation process plays out and the “maximum fair prices” (MFPs) are announced, by September 1, those results too will feed into industry analysis and decision-making.

PE: Have there been any updates or ongoing negotiations regarding the IRA?
Valder Curran: As a reminder, the negotiations remain confidential at the discretion of the manufacturer. CMS has said it won’t disclose details unless a given manufacturer first does so, and none have to date.As a result, all we know is that the “negotiations” are proceeding along the statute’s prescribed timeline. Specifically, and as confirmed by CMS’s own statements, the agency issued its initial “maximum fair price” offers to the manufacturers with selected drugs by February 1st of this year, and that the manufacturers responded to those offers by March 2nd. CMS and each manufacturer now have the opportunity for some back-and-forth, including meetings, to continue their discussions. The statute requires that the negotiation process conclude by August 1, 2024, and that CMS announce the MFPs by September 1st.

PE: What other issues are impacting drug pricing at the moment?
Valder Curran: Two that immediately come to mind are state prescription drug affordability boards (PDABs) and state legislation in relation to the 340B drug pricing program, with the common theme being actions by the states. PDABs, and in particular those with authority to set upper payment limits, or UPLs, on drugs deemed “unaffordable” have the greatest potential impact. Colorado is the first state out of the blocks to move toward the setting of UPLs on brand products, which effectively cap the price at which manufacturer can sell a product to anyone in the state and are expected to be lower than commercial prices. Due to a requirement that manufacturers extend their lowest or “best price” for a drug to all state Medicaid programs, these UPLs are likely to end up impacting prices nationwide. On the 340B side, multiple states have passed or are considering legislation that addresses payment rates for 340B covered entities in their states and restricts the ability of manufacturers to limit contract pharmacy arrangements in their states. As with manufacturer court challenges to the IRA, expect litigation challenging these laws as well, particularly as they proliferate across the country.

PE: When will there be clarity about the IRA and its effect on the pharma industry?
Valder Curran: Separate and apart from the results of the pending litigation challenges, there are four events that will be important to watch.

  • The first is CMS’s announcement of the MFPs for the first 10 drugs, by September 1. Where those MFPs end up and the rationales CMS publishes in support of them will provide important insights as to how CMS approaches the process and supply manufacturers (and the market) with some tea leaves to read as they prepare for round two of the negotiation process.
  • The second is CMS’s issuance of updated guidance for that second round of negotiation, for so-called Initial Price Applicability Year (IPAY) 2027. CMS has stated repeatedly that its current guidance applies only to the program’s first year, IPAY 2026, and so whether and to what extent the guidance for IPAY 2027 changes from that issued for IPAY 2026 will also be informative. We hope to see that guidance before the end of the year, because CMS will identify the selected drugs for IPAY 2027 by February 1, 2025.
  • The third event, or series of events, is whether and to what extent the announced MFPs impact the launches of the generics and biosimilars for those selected drugs. There could be such generic and biosimilar launches as soon as 2025, at which time the MFPs will be published but not yet in effect, and other selected drugs will face potential generic/biosimilar launches in 2026 and later years, after the MFPs go into effect. It will be interesting to see how competition with an MFP rather than a brand product WAC price impact those generic and biosimilar launches and generic strategy more broadly going forward.
  • Fourth, and finally, is how CMS operationalizes the availability of MFPs to patients. The IRA requires manufacturers to ensure that eligible Medicare patients pay no more than the MFP at the point of dispensing. Given manufacturers sell product into the channel without knowing whether a given unit of product will be subject to an MFP, this statutory mandate seemingly requires some sort of process for manufacturers to make dispensing pharmacies and providers whole after-the-fact for the difference between those entities’ acquisition cost and the MFP they extend to Medicare patients. CMS has acknowledged as much, but now the details have to be worked out. Issues such as validating such claims for reimbursement by pharmacies and providers, ensuring that manufacturers are not subject to duplicate discount claims under the 340B program, for example, and ensuring that the reimbursement to pharmacies and providers is timely all are important topics to be worked out with the potential for significant impact to the pharmaceutical supply chain.
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