Healthcare Policy Updates Specialty Drug Manufacturers Need to Know

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The pharmaceutical industry is one of the most highly regulated industries in the United States. Despite many legal and regulatory obstacles, the U.S. has led the world in the number of new chemical and biological entity launches since the year 2000. To continue to innovate and flourish, life science companies must stay on top of and adapt to ever changing policies. Here are updates on three recent federal government policies that specialty drug manufacturers need to be aware of:

Electronic prior authorization

Prior authorization (PA) processes impose a burden on healthcare providers and can create considerable barriers to patient treatment access. According to an American Medical Association (AMA) survey, almost nine out of ten providers characterize the burden associated with PAs as “high” or “extremely high.” As of 2021, more than one-third of PAs were still fully manual – submitted via phone, fax, email, or mail. A manual process leads to care delays and abandoned treatment, negatively impacting patient outcomes.

According to an independent data analysis of PAs commissioned by AHIP, automated electronic prior authorizations (ePAs) significantly reduce the administrative burden on providers and the time to therapy initiation.

On December 6, 2022, The Centers for Medicare & Medicaid Services proposed a new rule that directs specific payers to move to ePA by 2026. The rule includes requirements that payers need to send decisions within 72 hours for urgent requests and seven days for standard requests, in addition to providing a specific reason for denials and publicly reporting PA metrics.

PAs are a commonly employed utilization management (UM) measure that payers use to control specialty medication costs. As healthcare systems shift to fully automated PA processes, life science companies should seek a commercialization partner that offers a seamless, integrated ePA process that keeps their brand teams in the loop on how payers are treating their product.

DIR Fees

Direct and indirect remuneration (DIR) fees refer to the compensation pharmacy benefit managers (PBM) or Medicare Part D sponsors receive from pharmacies as much as a half year after the point of sale. This compensation includes rebates offered by manufacturers and concessions paid by pharmacies.

These retroactive fees, also known as “claw-backs,” generate negative reimbursements for drugs that have already been dispensed. Between 2010 and 2020, the use of DIR fees grew by 107,400%. According to NCPA research, a typical community pharmacy pays around $81,000 annually in DIR fees. As these fees have exploded, so has their ambiguity and unpredictability, causing financial hardship for pharmacies and increasing patient out-of-pocket and nonadherence, ultimately diminishing brand performance.

On April 29, 2022, CMS issued a final rule eliminating retroactive DIR fees by requiring that they be included in the negotiated price the patient pays at the pharmacy. The new rule will take effect in January 2024. This policy change should enable manufacturers to improve their gross to net while allocating more funds to patients to support patient access and care.

Drug Pricing

The Inflation Reduction Act (IRA), signed into law on August 16, 2022, includes several provisions to reduce prescription drug prices. Here’s a closer look at the provisions that will impact specialty drugs:

1) Pharmaceutical companies will have to pay rebates to the federal government if prices for single-source drugs and biologicals covered by Medicare Part B (effective in 2022) and most prescription drugs covered by Medicare Part D (effective in 2023) increase faster than the inflation rate.

2) Beginning in 2026, the federal government must negotiate prices for certain drugs with the highest total spending. This provision amends the “noninterference” clause with an exception that requires the Secretary of HHS to negotiate prices directly with pharmaceutical manufacturers for a limited number of single-source brand-name drugs or biologics that are covered under Medicare Part D and Medicare Part B. Some drug categories are excluded from this provision:

  • Drugs that have a generic or biosimilar competitor

  • Small-molecule drugs that are less than 9 years from their FDA-approval or licensure date and biologicals that are less than 13 years away

  • Drugs that account for less than $200M in Medicare spending in 2021

  • Therapies that qualify as “small biotech drugs,” until 2029

  • Treatments designated by FDA as orphan drugs

  • Plasma-derived products

3) In 2024, CMS will be able to cap out-of-pocket spending for Medicare Part D enrollees. Additionally, starting in 2025, Medicare’s liability for total costs above the spending cap will decrease significantly. This provision also requires manufacturers to provide specific price discounts on brand-name drugs and beneficiary premiums will be adjusted so that they do not increase by more than 6% from year to year. These changes are expected to substantially decrease out-of-pocket spending for beneficiaries who take specialty medications.

The overall purpose of the new provisions is to improve affordability and access to innovative treatments, which not only benefits patients but also biopharmaceutical manufacturers. However, some of the requirements are expected to result in lost revenue for life science companies and negatively impact biopharma R&D investment levels, ultimately hurting innovation in the industry.

Managing the ripples

Every new healthcare policy has ripple effects for all stakeholders – both intended and unintended. As pharmaceutical markets, pipelines, and policies continue to evolve, life science companies of all sizes need an agile and flexible approach to optimize commercialization. Commercialization strategies are highly complex, costly, and cumbersome to execute – learn how PHIL can help your company here.

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