Policy makers today are hyper focused on the drug pipeline and pharmaceuticals, though how their actions will impact the market remains unclear. One thing is known: As dynamics change in response to the Inflation Reduction Act of 2022 (IRA) and other state and federal policies, real-world data (RWD) will become even more critical to commercial success. To stand out amongst potential competitors, evidence must not only demonstrate the value of a medication, but its effect on total cost of care and outcomes.

The Centers for Medicare and Medicaid Services (CMS) will announce the negotiated prices of the first 10 prescription drugs later this year under the IRA (through Medicare Part D), for which enrollees paid $3.4 billion in out-of-pocket costs in 2022. The prices negotiated this year will go into effect in 2026. But this is just the first in an ongoing series of negotiations. By early 2025, CMS will select the next 15 Part D medications that will be subject to price negotiations; those prices will take effect in 2027. The number of drugs selected is expected to grow over time.

Medicare enrollees using these medications should save on out-of-pocket costs, but the debate persists about whether these laws may have unintended consequences on future patients and innovation with manufacturers adjusting R&D strategies in response.

While the IRA has dominated headlines, it is not the only proposal to which pharma leaders must pay attention to in this election year:

• The Centers for Medicare and Medicaid Innovation (CMMI) have proposed two noteworthy changes in response to an executive order from President Joe Biden on lowering prescription drug costs. One proposal would see CMMI adjust payments downwards for Medicare Part B medications granted accelerated approval by the U.S. Food and Drug Administration (FDA) to incentivize confirmatory trials. The other proposal would empower CMS to negotiate multistate outcomes-based agreements on behalf of state Medicaid agencies for cell and gene therapies. 
• There were 825 bills proposed in 2023 focused on drug pricing in some manner across 52 states including Washington, DC and Puerto Rico. Roughly 147 bills were enacted in 44 states starting in 2024 with several building on momentum around drug affordability boards.

With an estimated $454 billion paid to health plans and 51% of Medicare enrollees now choosing Medicare Advantage (MA) over traditional Medicare, MA is poised to shape the future of payment and care delivery. The continued maturation of the MA market, combined with payment decreases starting in 2023, will require health plans to adapt. This may include increased scrutiny from MA-participating stakeholders on medication costs and care pathways.

It’s a watershed moment as Medicare Advantage (MA) enrollment overtakes traditional Medicare. Indeed, it’s estimated that 61% of the Medicare market will be MA plans by 2031. A number made more compelling since CMS administers all of traditional Medicare. MA is a competitive environment with the average Medicare beneficiary having access to 43 MA plans in 2024.

Advisory Board analyzed 9 markets where MA penetration is more than 50% and found that in 5 of them, at least one health plan had a 25% market share of all Medicare lives. In these markets, manufacturers can deduce trends to determine partnerships and assess local ecosystem dynamics moving forward. MA plans may have different types of care models, clinical programs and cost sharing requirements that manufacturers should consider.

In response to a maturing market, plan sponsors are offering more diverse product portfolios that align with patient preferences. In 2023, about 70% enrollees in individual MA plans with prescription drug coverage paid no premium other than the Medicare Part B premium. MA plans also usually include extra benefits such as dental, vision and hearing, often for no additional premium, which may mean the use of cost management tools typical of a private health plan.

The competition among health plans leads to increased beneficiary choice and more opportunity to switch plans year over year. An Advisory Board analysis found 23% of beneficiaries switch plans within one year of joining. However, managing costs becomes a challenge with more patients in MA plans — and it’s compounded by several concurrent changes this year to MA payment and policy.

A few recent and notable regulatory changes made by the Centers for Medicare and Medicare Services:

• Changes to CMS Star Ratings System including finalizing a new health equity index and technical changes to star measures that results in a -1.24% for 2024. 
• Implementation of a new risk adjustment model that is estimated to bring MA rates down an average of -2.16% for 2024. 
• Adopting stricter requirements on the use of prior authorization and utilization management. 
• Finalizing the Risk Adjustment Data Validation process that establishes a new methodology for CMS’s audit process to recoup identified improper payments and estimated to reduce Federal spending by an estimated $4.7 billion from 2023–2032.

Private equity (PE) has invested an estimated $750 billion in health care over the past decade. This sector’s current focus on the acquisition of independent primary and specialty care practices appears driven in part by the intersection of complex novel products, accompanying diagnostic tests, site-of-care shifts and an aging patient population. The tendency for PE to focus on specific geographic areas means manufacturers should pay attention to the way PE-operated practices differ from others in the market.

After making several in-roads over the past decade, PE organizations accounted for 65% of all acquired physician practices between 2019 and 2023. Despite the general economic slowdown, the average PE fund saw an increase in fund size of roughly 35% in 2022 compared to 2021. This financial might and flexibility, coupled with previously mentioned market forces, create significant opportunities for PE firms to deploy their playbook of:

• Consolidating fragmented practices
• Cost cutting
• Shifting care to outpatient settings
• Driving ancillary volumes

Private equity has historically focused on dermatology, ophthalmology and gastroenterology, but recent expansion includes forays into more specialties and primary care. Data from PitchBook identified five areas that saw sustained or continued growth in PE investments in 2022:

• Musculoskeletal (MSK) — 80 deals 
• Urology/renal — 17 deals 
• Infusion — 14 deals 
• Ear, nose and throat (ENT) — 14 deals 
• Cardiovascular (CV) — 7 deals

These five specialties include some of the most influential specialties on IDN finances, but PE’s interest in infusion care is particularly noteworthy for pharma and biotech manufacturers. PE firms see present and future business opportunity in the strong patient demand for Alzheimer’s and weight management treatments. They also see potential synergies in Alzheimer’s care specifically related to the accompanying diagnostic testing required. Investments in this space could make PE a significant player in infusion care for years to come, especially given demographic trends.

The Medicare-eligible population will almost double by 2060 — representing 23% of the overall population. This will likely lead to an increased demand for more affordable sites of care for infusion care across multiple chronic conditions. Estimates predict that the infusion market alone is set to grow from about $100 billion in 2021 to about $140 billion in 2025 based on an 8.6% compound annual growth rate (CAGR).

There are additional incentives for PE in the continually growing and profitable MA market. For example, in 28% of markets, a single PE firm owns more than 30% of practices in 10 specialties. Advisory Board research predicts that after years of focus on primary and home-based care, specialty care will be the next frontier for PE growth as it provides players with a complementary piece to create an ecosystem around aging patients and primary care physicians.

Two factors are key to this prediction:

• The increased MA beneficiary preference for preferred provider organization (PPO) plans that give them more independence to choose their care and care provider as discussed in the second trend. 
• The anticipated 3% increase in specialty care utilization by 2030 and opportunities for the cost reduction at which PE excels. The table to the right outlines the 10-year projected growth rate for outpatient specialties relevant to older adult patients, many of which have an infusion and diagnostics component. An Advisory Board analysis suggests these 12 highlighted specialties have the most potential to reduce downstream costs.

While the infusion market is attractive to PE, it is not without headwinds that all stakeholders should keep in mind. Chief among these is that private equity investment in health care has drawn scrutiny and action from the Federal Trade Commission (FTC). FTC Chair, Lina Khan, has made several public comments related to concerns over PE deals in health care and the FTC sued a PE firm last September for what it alleges are anticompetitive practices in Texas.

The current wave of innovative drugs have the potential to transform patient journeys and outcomes. However, the burden of that transformation often falls to providers and the financial risk to health plans and employers. In recent years, providers and purchasers alike have questioned the value of innovations in cell and gene therapy (CGTs), Alzheimer’s treatment and weight management drugs. Each of these treatments require significant care delivery transformation before adoption and expensive wrap around services during delivery, causing providers and payers alike to question the net benefit. Manufacturers will need to tackle this hesitancy to bolster commercial success.

Three classes of pharmaceutical treatments — weight management drugs, Alzheimer’s treatments and CGTs — have dominated headlines over the past few years, both for the potential tremendous impact on patient lives and for the high price tag. A few examples of the financial concerns include:

• CMS raising the monthly premium under Medicare Part B from $148.50 to $170.10 in 2022 partially over concerns around pricing and utilization of Alzheimer’s treatments
• One estimate placing the impact on Medicare Part D spending of lifting restrictions on obesity drugs between $13.6–26.8 billion 
• Estimated spending on gene therapies in 2024 that may total $22.4 billion

Providers and purchasers alike voice concerns about effectiveness and the burden (and cost) of implementation. To the point on effectiveness, a 2023 analysis of more than 20 years of data on CGTs for orphan diseases and hematological conditions found that these products were 2 to 3 times as likely to gain regulatory approval compared to other therapeutic modalities.

Given the rare nature of the diseases these products treat and the lack of other treatment options, the FDA is more likely to grant approval. This is a red flag for both providers, who worry about prescribing what they may see as unproven products and purchasers who want more data to justify coverage. The novel nature of these products means that despite their promise of durability such as with Alzheimer’s, it cannot be definitively verified with current evidence when a patient is “cured” after treatment.

For weight management drugs, weight regain is a common experience for those who stop taking GLP-1s, limiting its benefit. And there are concerns about patients taking GLP-1s for a prolonged period of time. The Mayo Clinic recently announced that its medical plan for employees will have a $20,000 lifetime limit for weight management products starting this year.

Visibility into longitudinal patient outcomes may be easier to track once the interoperability rules enforced by the Office of the National Coordinator (ONC) are more engrained in clinical workflows — but for now, this ambiguity can make it challenging to structure payment models to channel value to the initial plan sponsor for its financial contribution.

Regardless of the underlying condition treated by these therapies, these products require hospitalbased services before and after administration. And, these services aren’t consistently factored into cost considerations. Cell and gene therapies especially require significant upfront investment that few are willing to take the risk on.

Conversely, it’s worth noting that some providers do see the business case in transforming care to deliver some of these products. Adoption of obesity programs is a good example of this. While some providers see GLP-1s as a huge cost burden, others are taking the leap to integrate weight management services as a way to generate new revenue. This variability creates opportunities for manufacturers to partner in new ways with patients and providers to redefine patient journeys and amplify successful care pathways in the marketplace.

Provider uncertainty over the longterm effect of cell and gene therapies (CGTs) is leading to increased reports of patients remaining on the previous standard of care after treatment, which challenges manufacturer value narratives around the transformational impact of these products.

Manufacturers must address the lack of physician confidence or face questions from stakeholders over whether they are seeing the expected value from these products.

This year may represent a high mark for CGTs in the number of patients treated and the revenue generated. There are several eagerly anticipated approvals in this space including therapies for rare cancers, hemophilia and genetic disorders with more than $100 million in projected sales. The cumulative spend on gene therapies this year is estimated to approach $22.4 billion.

Both commercial and government plans will spend money on CGTs, with a notable sum hitting Medicaid because of the recent approval of the two sickle cell treatments. While much of the current emphasis on the financial burden of these products is rightly focused on patient costs and financing models, manufacturers need to account for concerns specific to providers. Interviews with HCPs delivering some CGTs highlight a level of uncertainty into the durability of these products with some patients also staying on the standard of care even after enduring a long and complex treatment process.

The trend of overtreatment has two distinct consequences. First, it potentially challenges the value narrative associated with these products predicated on replacing the standard of care and removing those costs from the system. Second, it has potential implications for patient physical and financial wellbeing if they do not need to continue receiving the standard of care and its associated costs and benefits.

Manufacturers must address this challenge through ongoing studies, patient monitoring and in some cases, outcomes-based contracts that require the cessation of the standard of care as a prerequisite for coverage. However, bolstering provider confidence in these new products must remain a priority to help increase access for patients who may benefit from these therapies.

New patient solutions to address access are taking root across the health care industry. Manufacturers are the newest group to experiment in this space by meeting patient access needs outside of traditional drug delivery dynamics. Manufacturers should determine how the intersection of the products in their portfolio, shifting practice patterns and unmet patient needs lend themselves to solutions. Working with a variety of partners to create a frictionless patient journey, manufacturers can seize the opportunity to build brand loyalty.

The barriers patients face to access drugs and services continue to spawn disruption driven by players both outside and within the health care industry. The era of “everywhere care” lays the groundwork for a patient experience rooted in the ability to combine virtual and in-person care through various touch points from health plans, providers, retailers and digital health companies.

However, more than 70% of U.S. adults felt in a recent survey that the health care system failed to meet their needs in at least one way. Responding to patient demand and supply chain issues, some manufacturers have also moved into the ecosystem of “everywhere care” by offering additional channels to facilitate access to their medications. These moves offer certain patient populations a more direct and efficient solution for their health problem by addressing different types of barriers — whether it’s logistical, geographical or cost-related. However, affordability still remains a hurdle for some patients.

Recent examples include:

• Eli Lilly’s website LillyDirect that allows patients to get a weight loss drug prescription through a telehealth provider, including its US. Food and Drug Administration (FDA) approved drug, Zepbound. LillyDirect joins a growing list of platforms like WeightWatchers and Ro offering weight loss drugs through telehealth, but it is the first of its kind from a pharmaceutical company. The manufacturer also offers a similar telehealth prescription and delivery service for some of its migraine and diabetes medications. 
• Women’s health-focused specialty pharmaceutical company ASCEND Therapeutics provides access to EstroGel, its FDA-approved hormone therapy for postmenopausal women, through its website by partnering with a telehealth provider and delivery service. 
• Manufacturers IBSA Pharma, Johnson & Johnson, Pfizer and TheracosBio partner with Mark Cuban’s Cost Plus Drugs to offer patients an alternative channel to access brand drugs to treat diabetes, underactive thyroid and menopause.

As manufacturers forge new relationships with patients, they need to consider the long-term core competencies and capabilities these initiatives will require. Creating a digital channel can provide manufacturers a way to reach patients with limited access to in-person care or retail pharmacies. By making it easier to buy and refill prescriptions for certain products, a digital channel can improve medication adherence and patient outcomes.

In addition, online channels can provide access to richer consumer data that help manufacturers understand their patients better, execute more effective marketing strategies and improve the patient experience by offering tailored patient programs. Finally, in certain situations, solutions from manufacturers may overcome access barriers in traditional channels. Life sciences leaders will need to weigh these potential gained capabilities against the implications of meeting patient needs outside of established dynamics.

The notoriety surrounding the costs of the new weight loss medications has made access a top-of-mind issue for patients. A recent survey found that, of those who had obesity, about half would stay at a job they didn’t like to retain coverage for obesity treatment. Meanwhile, 44% said they’d change jobs to gain coverage for obesity treatment.