11/30/2022

IRA Medicare Part B Negotiation Shifts Financial Risk to Physicians

The Inflation Reduction Act (IRA) was signed in August 2022 and requires the Secretary of Health and Human Services (HHS) to negotiate and publish a “Maximum Fair Price” (MFP) for select single-source drugs that are covered under Medicare Part B (physician-administered products) and Part D (retail products). Varying with a product’s number of years on market, the IRA established an automatic reimbursement reduction equal to an applicable percentage of a drug’s average non-federal Average Manufacturer Price (non-FAMP).

As HHS prepares to implement the IRA within the existing reimbursement structures, for Part B drugs the statute implements the negotiated price by directly reducing physician payment. Instead of basing payment on the drug’s average sales price (ASP) plus 6%, the Centers for Medicare & Medicaid Services (CMS) would tie provider reimbursement to MFP plus a 6% add-on payment, subject to sequestration.

Avalere previously assessed the impact of the Build Back Better Act (BBBA) on physician reimbursement and found an average reduction of 39.8% in add-on payments for providers administering the subset of Medicare Part B drugs targeted for negotiations under the older proposal. Under the IRA’s negotiation parameters, which differ slightly from the BBBA, Avalere finds that for the updated list of affected drugs, the add-on payment across all providers would drop by 52.1% on average. However, the reductions could be larger if HHS negotiates prices below the maximum outlined in the statute, which the Secretary may do after reviewing additional clinical and market data.

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