The Inflation Reduction Act (IRA) and Enhancing Oncology Model (EOM) are expected to have significant impact on the spend and price of health care, but the specific impact of each will depend largely on how they are implemented and how the pharmaceutical industry and health care providers respond. In the following paragraphs, we discuss some potential unintended impacts of both.
The CMS Enhancing Oncology Model is a new payment model that began on July 1, 2023, which aims to improve the quality and reduce the cost of cancer care for Medicare Fee For Service (FFS) beneficiaries. The EOM is designed to do this by putting participating oncology practices at financial risk for the total cost of care for their patients. This design should incentivize practices to focus on providing high-quality, coordinated care that is more efficient and cost effective.
The EOM is the second such quality-based oncology payment model put forth by the Centers for Medicare & Medicaid Services (CMS). The Oncology Care Model (OCM) ended on June 30, 2022. While the model ultimately did not prove to reduce spending, there were some bright spots. Most notably, the improved uptake of less costly biosimilars, particularly rituximab, bevacizumab, trastuzumab, and pegfilgrastim. Beyond the shift in utilization patterns away from reference products to biosimilars, there could be potential for practices to make further treatment shifts. The EOM participants will assume risk immediately while also receiving lower enhanced services payment per beneficiary, likely pressuring providers to reduce total cost of care. While the OCM did not demonstrate a change in utilization of newer ICI treatments, there is a potential for EOM practices to move away from these newer treatments in favor of less costly systemic chemotherapy treatments when guidelines provide broad recommendations. Keep in mind that the CMS negotiations for Part B medications, as part of the IRA, will not go into effect until 2028, the final six months of the EOM. Manufacturers of novel, higher-cost treatment regimens should assess how the EOM may affect access to their products and develop targeted communication strategies to educate and demonstrate to providers about the overall value of their products.
The Inflation Reduction Act signed into law last year includes several provisions that are designed to lower prescription drug prices and spending. However, there are possible unintended consequences from the IRA drug negotiation and inflation penalty provisions. The IRA may stifle research and development of new, innovative treatments, driven by the shorter window to recoup investments in new drugs. To counter the inflation penalties, expect manufacturer launch prices of new treatments to be much higher than in the past. This will allow the company to work within the inflation penalty guardrails while also recouping their investment prior to the potential for negotiation.
Lastly, once finalized, the Maximum Fair Price (MFP) initiative is likely to be implemented as a reimbursement reduction to providers in Medicare FFS. Because the price concessions associated with the MFP are included in Medicaid best-price calculation but not explicitly excluded from Average Sales Price (ASP), the best price and ASP for negotiated drugs are likely to decline over time, depending on how CMS implements the provision. A significant number of commercial and Medicare Advantage physician practice contracts with payers are based on ASP, so MFP-based negotiations could place further financial pressures on providers. These pressures are likely to affect independent physician practices more than hospitals, because a larger proportion of reimbursement contracts with physicians are based on ASP. On the other hand, hospitals are often reimbursed under a “percent-of-charges” that insulates them from changes in ASP, and the hospitals generally have strong negotiating positions that often garners higher commercial reimbursement. Over time, the drug supply chain for MFP-negotiated products may shift to closely align acquisition prices for providers with Medicare reimbursement at MFP.
The EOM and IRA are both intended to reign in prices and spending on health care. The IRA is estimated to lower prescription drug spending by over $300 billion over the next decade. The EOM is expected to improve the quality of cancer care and reduce costs by up to 10%. While these savings have the potential to be significant, one cannot overlook the likelihood of unintended consequences to physician practice revenues, access to new, innovative treatments, and future launch prices.
- Centers for Medicare and Medicaid. Enhancing Oncology Model. https://innovation.cms.gov/innovation-models/enhancing-oncology-model. Accessed August 21, 2023.
- Juliette Cubanski J, Neuman T, Freed M, Damico A. How will the prescription drug provisions in the Inflation Reduction Act affect Medicare beneficiaries? KFF. January 24, 2023 https://www.kff.org/medicare/issue-brief/how-will-the-precription-drug-provisions-in-the-inflation-reduction-act-affect-medicare-beneficiaries/ Accessed August 21, 2023.