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How the Inflation Reduction Act could impact cancer care


For the first time, cancer is now the top condition driving health care costs for large employers, according to a new survey from the Business Group on Health. However, the recently passed Inflation Reduction Act, which allows Medicare to negotiate certain prescription drug prices, could potentially impact the cost of cancer care in the future.

6 takeaways for cancer programs from Medicare's 2023 proposed rules

Cancer is now the most expensive condition to treat

For the survey, the Business Group on Health asked 135 large employers across several sectors—covering roughly 18.3 million people in the United States—about their benefit design, cost management, and other health care strategies.

The survey found that while employers did not see an increase in their health care costs from 2019 to 2020, costs increased significantly in 2021, with the median cost rising 8.2%

In particular, employers identified cancer as the condition that drives the largest share of their health care costs, followed by musculoskeletal conditions. Previously, musculoskeletal conditions had surpassed cancer as the most expensive condition for employers.

"So for the first time in the history of this survey, cancer has overtaken musculoskeletal conditions as the top cost driver," said Brenna Shebel, VP of the Business Group on Health. "Musculoskeletal is still driving costs, but … in this year, it's quite a dramatic shift."

When it comes to cancer diagnoses, 13% of employers said they are seeing more late-stage cancers among their employees, and 44% said they expect the number of late-stage cancer cases to increase in the future. According to a study published in JAMA Network Open, millions of cancer screenings were missed during the pandemic—which may have led to delayed diagnoses.

"We have a lot of concern that this situation will worsen as those pandemic-driven care delays come to bear," Shebel added.

To address cancer costs, 50% of employers plan to provide access to centers of excellence for cancer in 2023, while 26% of employers are considering doing so by 2025. "The most common incentive or encouragement is reimbursing or paying for travel and accommodations," Shebel said. "So when an employee does travel to a center of excellence, their mind is at ease, they don't have to pay for travel and accommodations."

In addition, 32% of employers said they will cover genomic testing for cancer in 2023, and 14% said they are considering doing so by 2025. Eleven percent of employers also said they will cover blood detection tests for cancer in 2023.

How will the Inflation Reduction Act affect cancer care?

Last week, President Joe Biden signed the Inflation Reduction Act into law, paving the way for several new health care reforms.

Under the new law, Medicare will be able to negotiate certain prescription drug prices with pharmaceutical companies, reducing federal expenditures by roughly $288 billion over 10 years. That provision will apply to 10 drugs starting in 2026 and expand to 20 drugs in 2029.

According to Axios, pharmaceutical companies argue this provision will reduce their incentive to bring new drugs to market and limit their ability to maximize revenue for cancer treatments.

Cancer drugs are usually approved to target one type of cancer. Companies then typically do further research to see if the drug can also target other forms of cancer, and, if effective, the drug can gain approvals for other "indications."

However, the Inflation Reduction Act may make it less worthwhile for companies to assess different indications of a drug since "functionally they have significantly less revenue per unit" if the price is capped after a certain amount of time, said Massey Whorley from Avalere Health.

Separately, Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, said that research on cancer treatments after their initial approval "will be gutted" by the Inflation Reduction Act.

"It tells researchers that their successful post-approval research will quickly be subject to government price setting," Ubl said. "And it virtually assures that President Biden's cancer moonshot never leaves the ground."

However, other experts argue that expanding the market for cancer treatments through indication research will still be profitable enough for drug companies to justify their research and development costs.

"If a supplemental indication is a big enough group of cancer patients, then it will still make financial sense to seek a label expansion to those patients," said Aaron Kesselheim, a professor at Harvard Medical School.

In addition, Rachel Sachs, a law professor and drug pricing expert at Washington University in St. Louis, noted that a special provision in the new law could exempt certain cancer drugs from pricing negotiations.

Sachs added that the law may actually encourage drug companies to develop more novel products going forward. "We may not need companies to develop another inhibitor — and so, it's the case right now that pharma isn't always choosing to invest in the spaces that are the best spaces," she said.

Overall, Whorley said that while drug companies may have a decreased incentive to seek new indications under the new law, that doesn't mean there is no incentive to do so. "What the calculus then shifts to … is it going to continue to allow them to fully recoup their costs of pursuing a new indication," he said. (Owens/Knight, Axios, 8/24; Minemyer, Fierce Healthcare, 8/23; Reed, Axios, 8/24; Plescia, MedCity News, 8/23; Business Group on Health press release, 8/23)


Advisory Board's take

What will Medicare negotiation mean for life sciences?

By Amanda Okaka

 

The Inflation Reduction Act will have meaningful implications for life sciences in the short and long terms. In the near term, capping out-of-pocket expenses at $2,000 and expanding rebate penalties for drugs with price increases that exceed inflation (which was half of part D drugs from 2019 to 2020) within Medicare will likely incentivize higher launch prices.

Potential long-term consequences for life sciences companies include:

  • Higher list prices due to the potential for prices to be negotiated downstream
  • An investment shift toward drugs in therapeutic areas where Medicare does not spend as much (i.e., rare or orphan disease drugs)
  • Less incentive to pursue additional indications for already-approved drugs
  • More hesitancy to invest in preclinical or clinical programs where the federal government has funded relevant research, a factor in negotiation eligibility
  • Trend toward licensing agreements with generic and biosimilar manufacturers that 1) generate new revenue streams and 2) skirt the monopoly designation that makes drugs eligible for Medicare discount negotiations

Given how volatile biotech stocks have been the past year, it's also unclear how this legislation will affect biotech valuation and investment overall. Notably, the NASDAQ Biotechnology Index (NBI) has been losing value since the act was signed into law. The impact of these consequences will vary in magnitude and largely depend on reactions from other stakeholders. However, life sciences should be hopeful that Medicare negotiation will mean more patients can afford treatment leading to increased volumes.

What will Medicare negotiation mean for other oncology stakeholders?

By Lindsey Paul and Chloe Bakst

Aside from the major impacts on life sciences companies, Medicare negotiation will have a significant impact on other oncology stakeholders.

  1. Patients: This provision is a huge win for Medicare beneficiaries with cancer. They can expect to see lower out-of-pocket costs for negotiated cancer drugs—especially starting in 2028, when expensive provider-administered immunotherapies like Keytruda and Opdivo will be on the table for negotiation. With more than half of cancer patients today experiencing bankruptcy or other types of financial toxicity, lower costs will go a long way toward ensuring equitable access to treatment—and may even improve patient outcomes.

  2. PBMs and specialty pharmacies: According to a 2018 study, nearly half of Medicare Part D patients with high out-of-pocket costs fail to fill their prescriptions for cancer treatment. With lower drug prices and therefore lower out-of-pocket costs, more of these patients may choose to fill their oral cancer treatment prescriptions, boosting specialty pharmacy order volumes for some of the most expensive Part D cancer therapies. Since the largest PBMs own the specialty pharmacies that capture most prescription revenues for specialty drugs, Medicare negotiation of cancer drug prices could improve the bottom line for PBMs.

  3. Providers: Since Medicare reimburses for provider-administered drugs based on the average sale price, Medicare negotiation of Part B drug prices will likely lead to lower drug reimbursement for oncology providers. However, this may be somewhat tempered by higher infusion volumes if more cancer patients can afford to receive treatment. And if less financial toxicity for patients does lead to better outcomes, cancer programs may end up with lower downstream spending.

  4. Health plans: The impact of Medicare negotiation on health plans is the most difficult to predict. On one hand, it's possible that commercial health plans will be able to follow the government's lead in negotiating lower cancer drug prices with manufacturers, which would lead to significantly lower plan spending. On the other hand, manufacturers may want to try to recoup their losses from Medicare price negotiations by negotiating higher payment for cancer drugs from commercial health plans. The true impact may lie somewhere in the middle, and it will be interesting to see how this plays out over the next five to ten years.

The long-term impacts to each of these stakeholder groups will depend on how manufacturers react, including their strategies for investing in cancer drug discovery and development moving forward. For now, we'll be watching closely to see how each of these groups reacts as the first round of drug price negotiations begins next year.


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