IRA could energize U.S. HTAs

Making case for value of drugs is becoming more urgent

The Inflation Reduction Act is shifting the debate in the United States from whether government should regulate drug prices to how it should regulate drug prices. The law could create new opportunities for public assessments of the value of drugs, spurring the creation of new organizations and methods to conduct value assessments. 

Even the IRA’s opponents in the biopharma industry know that wholesale repeal or replacement are not realistic near-term goals. Biopharma trade associations, CEOs and investors are building a case for increasing the nine-year threshold for price-setting, but it could take a long time to convince lawmakers to revisit the law. Divided government means congressional action on any controversial measure is virtually impossible. The results of the inevitable legal challenges to the IRA can’t be predicted with confidence.

Given the slim chances of sweeping it away or making substantive changes, the best near-term shots at moderating the unintended negative effects of the IRA on biomedical innovation center on influencing the ways CMS implements the law, especially the price-setting provisions. A predictable, consistent methodology that doesn’t inevitably result in a rock-bottom price would send strong signals to investors and drug companies that the IRA won’t be used to punish a politically unpopular industry.

The absence of evidence about how CMS will set prices, and political rhetoric accusing industry of profit gouging, has led many CEOs and investors to assume that prices will be close to those that occur with generic competition. The effects of slashing prices of small molecule drugs nine years after launch would be profound, dramatically limiting the ability of industry to invest in precisely the kinds of medicines society needs most urgently. 

While the IRA outlines criteria for HHS to consider when determining the maximum fair price of pharmaceuticals, it gives the department discretion to decide how to weigh the data and allows it to consider other factors. This discretion will inevitably fuel accusations of bias.  

By focusing on drugs with the largest Medicare spend, the IRA is structured as a cost-cutting exercise rather than an attempt to encourage the use of high-value medicines or reduce spending on less effective drugs. It may be possible, however, for drug manufacturers to use data on the value of their products to limit price-cuts.

For drug companies, the IRA is creating an urgent need to characterize the value of their products on an ongoing basis in transparent, credible ways. And it is creating a space for new entities to conduct and publicly debate health technology assessments. 

Guidance released last week provides some insights into how CMS will approach the exercise. Rather than rely on traditional cost-effectiveness metrics, the agency will anchor its initial “offer” — one manufacturers will have little ability to refuse — on a reference pricing analysis. The net prices of therapeutic alternatives, ranging from recently launched drugs at the high end of the pricing spectrum to generic or biosimilars at the low end, will be the principal comparators.

To the extent that CMS actually sets prices based on the prices of competing drugs, outcomes data that distinguishes a product from therapeutic alternatives could help manufacturers increase the final price CMS is willing to pay. 

Devil in the reference-pricing details

The reference pricing analysis will be modified, according to CMS, by factors that are not traditionally considered in cost-effectiveness calculations, including the manufacturer’s costs of R&D and production, as well as government support for the product.

It could be argued that supply-side factors are irrelevant to determining a “fair” price. The legislators who drafted the IRA did not explain how R&D or production costs affect the value of a drug, or if they believe that a company should be rewarded or punished for efficiency or for building on government-funded science.  

Determining the values to assign to supply-side factors will be contentious. For example, companies and CMS will have to determine how to allocate R&D costs, including the costs for discarded compounds, across a portfolio of existing and future products. 

Sometimes contributions from the federal government are clear, such as when a manufacturer acquires rights to a drug candidate that has undergone publicly funded Phase I trials. Attribution is more complex, however, when private sector drug development builds on basic scientific discoveries made by government-funded scientists.

On the demand side, the CMS guidance memo emphasizes both the weight it will assign to the clinical benefit of a drug compared with alternatives, and the latitude it is giving itself to consider evidence from a variety of sources.

In addition to data submitted by manufacturers, CMS said it is creating a pathway to “consider the multitude of information expected from public input, including but not limited to peer-reviewed research, expert reports or whitepapers, clinician expertise, real-world evidence, and patient experience.” The approach, CMS stated, “provides flexibility to consider multiple perspectives on the clinical benefit of the selected drug and its therapeutic alternative(s), including potential risks, harms, or side effects, and any unique scenarios or considerations related to clinical benefit, safety, and patient experience.” 

Value of independent assessment

CMS does not plan to make public most of the data submitted by manufacturers, and it intends to blanket the price-setting process in secrecy, revealing only the final “maximum fair” price.

Manufacturers, however, are not prohibited from providing the data they submit to CMS to third parties. It is very likely that companies will engage health economics researchers to conduct assessments based on the criteria mandated in the IRA, and submit the results to CMS.

In addition, it is likely that the Institute for Clinical and Economic Review (ICER) and other independent organizations will conduct their own assessments based on publicly available data of fair prices for drugs CMS has selected for price-setting.

Public disclosure of the results of assessments could be used to evaluate the prices that emerge from CMS’s process.

Former FDA Commissioner Scott Gottlieb has proposed going a step further, recommending that Congress put the assessments in the hands of external, independent organizations. Under this scenario, health technology assessment groups — both those that currently exist and new entities that could be formed to meet the challenge — would produce price assessments using the IRA’s criteria.

He noted a white paper from the USC Schaeffer Center - Aspen Institute that made the case for the establishment of a publicly funded, advisory-only health technology assessment agency. The proposed Institute for Health Technology Assessment (IHTA), would conduct health technology assessments, evaluate the quality of assessments conducted by other organizations, and recommend standards for assessments. In addition, the paper, which was published prior to enactment of the IRA, recommends that CMS create policies that ensure the proposed IHTA can have an impact on its decisions. 

“Rather than vesting the price-setting methods within the Medicare Drug Rebate and Negotiations Group at the CMS,” Gottlieb suggests, “the process could instead be conducted externally by independent organizations that can complete technical assessments of innovations within prescribed timelines based on methods that are transparent and objective. These evaluations would be done in advance of negotiations with drugmakers to guide the proposed prices the CMS establishes for drugs under the new legislative framework.”

The key to making this idea work, or to creating independent assessments that could serve as a reference point for assessing the CMS process, is to have multiple health technology assessment bodies looking at the same drugs.

This would shine a light on the disparate outcomes from assessments conducted by different groups, the transparency of their methods, and the influence of funding sources.

Divergent assessments of the cost-effectiveness of obesity drugs conducted by ICER and health economists at the University of Washington (UW) and Novo Nordisk A/S (CSE:NOVO B; NYSE:NVO), manufacturer of semaglutide, illustrate the point.

An ICER report concluded that the “health-benefit price benchmark range for semaglutide is between $7,500 – $9,800 per year,” well below the $13,618 net price.

The UW and Novo team concluded that semaglutide is cost-effective at the marketed price.

The principal difference in their methods was that ICER assumed lifelong administration, while the UW/Novo team assumed a two-year treatment course.

Other groups would bring different assumptions and methods to the task.

Peter Kolchinsky, managing partner at RA Capital Management, contends that traditional cost-effectiveness models fail to account for factors such as generic and biosimilar competition. He advocates the use of generalized cost-effectiveness analysis (GCEA), a tool that can take a broader array of benefits into consideration, including improvement elements such as the quality of life of caretakers, the future availability of generic drugs, the possibility that a medicine can serve as a bridge to keep a patient afloat while a cure is developed, and others.

Bringing alternative and competing approaches into the open, where they can be debated, would inject transparency and predictability. As Gottlieb suggests, externalizing assessments, rather than relying on an agency that has a direct financial — and arguably political — interest in their deliberations, would enhance credibility.