Drug pricing reforms from the IRA continue to impact pharmaceutical companies. The rebates ensued from the IRA guidelines are heavily affecting the revenues of biopharma companies
Today, at PharmaShots we have Jesse Mendelsohn, Sr. Vice President at Model N shedding light on the company’s recently launched solution called Medicare Part D inflation rebate-per-unit
With the new inflation rebate feature, customers will be compliant with the upcoming IRA regulation that takes effect in 2025.
Saurabh: The IRA has brought significant changes to Medicare, especially regarding drug pricing. What are your thoughts on its impact on the pharmaceutical industry?
Jesse: While the long-term impact is still unclear, pharmaceutical manufacturers are already revamping their commercial, revenue management, and R&D strategies. Manufacturers are anticipating downward pricing pressure not just for the drugs under negotiation but across the board. This pressure will change the financial calculations for launching new drugs, generics and biosimilars. Companies must find ways to offset potential revenue shortfalls and may even have to evaluate Medicare channel participation.
The IRA’s success in lowering drug prices for Medicare enrollees may come at the cost of research and development. The Medicare price caps could remove financial incentives to create drugs in similar therapeutic classes and reduce capital available for new drug development. We may also see reduced investments in post-approval research for new indications and, instead, a move toward more single indication niche treatment areas unlikely to attract government regulatory interest.
Saurabh: Can you elaborate on the specific challenges pharmaceutical companies face in complying with the Inflation Reduction Act’s rebate provisions?
Jesse: Pharma manufacturers face several unknowns amid ongoing negotiations. In particular:
How drug companies will deliver the mandated IRA price cuts to pharmacies.
How pharmacy benefit managers (PBMs) and payers will adjust their strategies to maximize profitability.
How commercial plans will react to the changes in Medicare.
In addition, the law presents additional administrative burdens as manufacturers must manage additional inflation rebate and pricing calculations and maintain records that demonstrate compliance.
Saurabh: In what ways does Model N’s new ‘Medicare Part D inflation rebate-per-unit’ feature address these challenges? What makes it unique?
Jesse: Model N’s new inflation rebate feature empowers users to calculate Medicare Part D inflation rebate-per-unit in accordance with IRA mandates.
This feature integrates seamlessly with Model N’s Government Pricing, Payer Management, Provider Management, and Validata solutions, providing users with a unified, end-to-end process to manage pricing strategy, calculate fees, and issue rebate payments. Manufacturers can optimize revenue by ensuring compliance and correct rebates.
Saurabh: Beyond calculating rebates, does the feature offer any additional functionalities to streamline compliance with the IRA?
Jesse: The Medicare Part D inflation rebate-per-unit feature integrates with the Model N ecosystem for a comprehensive system that manages policies, maps accurate data to policy requirements, correctly performs calculations, analyzes and validates results, establishes audit trails, and generates filing output.
Model N’s Payer application connects payer and provider contracts with claims processing, giving users visibility to assess and adjust pricing strategies. Pharma manufacturers can manage all government regulations (including the IRA) in a single application. The Model N platform has IRA-specific master data attributes in its product master data, and Regulatory Update Packs ensure that systems and processes adjust to adhere to evolving requirements in a timely fashion.
Saurabh: Can you share insights from the 2024 State of Revenue Report regarding the anticipated revenue impact on pharmaceutical companies due to the IRA, and how Model N’s solutions address them?
Jesse: Half of pharma executives expect the IRA’s Medicare drug price negotiation provisions to significantly impact revenue management programs, more than double last year’s results. Model N’s suite of solutions enables companies to optimize their pricing and revenue management processes in anticipation of changes and helps manufacturers manage, calculate, and report on drug pricing and rebates.
Saurabh: Beyond compliance, can this new feature offer any strategic advantages to pharmaceutical companies in the evolving pricing landscape?
Jesse: Model N’s product suite empowers companies to manage their revenue processes from beginning to end. With a clearer picture of pricing history, market conditions, contract terms, sales, and more, pharma manufacturers can build agile and optimized pricing strategies, accurately calculate payments and rebates, manage formulary compliance, and maintain membership-related data. These capabilities position companies to handle market fluctuations and identify areas of opportunity.
Saurabh: Could you discuss IRA regulations which are expected to keep evolving? How will Model N ensure its solutions stay current with these changes?
Jesse: Currently, it’s unclear how negotiations between CMS and drug companies will play out, including what information CMS will use to determine “fair value,” creating significant uncertainty for manufacturers. Meanwhile, pharma companies are still waiting for CMS to release critical details related to the IRA’s implementation, and several lawsuits against the IRA are making their way through court. And, of course, more drugs will be added to the price negotiation list. These unknowns make long-term planning a significant challenge.
Model N works closely with its industry partners and monitors all regulatory actions. We don’t wait to see what happens — we actively anticipate changes. With input from our customers, we build solutions and enhancements to address real-world needs and specific pain points.
Saurabh: Looking ahead, Model N is committed to staying ahead of the curve with IRA regulations. Beyond the rebate feature, are there any other areas in the life sciences space where you see a need for future technological innovation to address compliance and revenue optimization?
Jesse: Managing customer data will become increasingly important in the evolving pharma industry. According to the Model N State of Revenue Report, only half of pharma executives characterize their membership management process as highly effective, and 95% struggle to manage membership data. These statistics demonstrate the need for a customer data management solution. Model N recently released its Syndicated Customer Master to support pharma manufacturers in maintaining current customer data and ensuring accurate, customer-specific pricing across channels.
Formulary compliance presents another significant challenge, especially in light of regulatory changes. Model N data shows that 94% of executives are challenged with formulary validation, in large part due to outdated, manual processes to verify formulary plans against contracts and policies. These methods are inefficient, susceptible to error, and hinder reconciliation. Model N’s new Formulary Compliance solution integrates formulary data, compares contracts with published formularies to ensure compliance, and monitors outcomes to support account management. Effective formulary management increases patient access, ends revenue leakage, and strengthens relationships with payers and PBMs.
Managing transactional revenue generates large amounts of data. Pharma companies must find ways to derive value from this information for revenue management decisions. Model N is enhancing its data and analytics capabilities to further empower pharma companies to gain actionable insights from the data they already possess.
Image Source: Canva
About the Author:
Jesse Mendelsohn
Jesse Mendelsohn is a Senior Vice President at Model N, the leading revenue optimization and compliance provider for life sciences and high-tech manufacturers. With nearly 20 years in the industry, Jesse is an expert in pharmaceutical pricing, revenue, payer management, and government regulation, including Medicaid and state pricing laws.
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