Why Q1 Is Critical for Pharma Rebate Management
READ MORE
Insights & Articles
In a year marked by landmark legislative changes in support of value-based drug pricing, Medicare has recently received authorization to negotiate directly with drug manufacturers under the health provisions of the Inflation Reduction Act of 2022. Proponents of the law are hoping value-based pricing negotiations and inflation-based rate hike rebates for the country’s largest public healthcare payers will lower national drug costs and save U.S. taxpayers hundreds of billions over the next decade. Of course, pharmaceutical companies disagree.
In 2022, the pharmaceutical industry spent $187 million in lobbying funds fighting–unsuccessfully–to stop passage of a law that would grant Medicare negotiating authority for drug prices. The Inflation Reduction Act (IRA) of 2022 brought to life a legislative fix patient advocates, physician groups, and Democratic legislators have been trying to enact for decades as a tool to help lower prescription drug costs.
When the Medicare Part D retail prescription drug program was created in 2003, Republican legislators added the “noninterference clause” to the law to prevent Medicare from negotiating drug prices. Private health plans run the Medicare Part D drug program, but they set formularies and conduct drug price negotiations without Medicare’s input. The IRA establishes Medicare’s voice in drug price negotiations with drug manufacturers under the Drug Price Negotiation Program set to begin in 2023.
Medicare will be authorized to negotiate directly with manufacturers to find Maximum Fair Prices (MFPs) for a limited number of drugs that have no generic or biosimilar competition. The law also limits price increases year-over-year for Medicare Part D and Part B units sold (not for commercial units sold). Outside of a few product exceptions, drug makers who increase their prices more than the rate of inflation will have to pay rebates to Medicare.
Which drug prices can Medicare negotiate?
According to the new law, each year the Secretary of the Department of Health and Human Services (HHS) will select from a list of qualified single-source drugs with the highest total Medicare spending. The list of negotiation-eligible drugs will consist of the 50 costliest drugs from Medicare’s Part D program and (after 2028) the 50 costliest drugs from Medicare Part B (for drugs physician-administered on an outpatient basis).
A timeline for the changes enacted by the new legislation gives pharmaceutical manufacturers and health insurers time to adjust. The first step of the Drug Price Negotiation Program gives Medicare the authority to negotiate the 10 most expensive Part D drugs, with the negotiated price starting in 2026. The program expands to 15 eligible Part D drugs by 2027. Beginning in 2028, some Part B drugs may also be included in the list of 15 products that can be negotiated. From 2029 forward, Medicare can negotiate pricing for up to 20 Part D and Part B drugs. In total, Medicare will be able to negotiate prices on up to 60 eligible drugs by 2029.
The drugs for price negotiations under the IRA must meet certain standards, including the following:
• The drug may not have a generic substitute.
• For small-molecule drugs, it must be at least 7 years since FDA approval was granted.
• For biologics, it must be at least 11 years since FDA approval was granted.
• New drug formulations or treatments for rare diseases are excluded.
• Treatments extracted or developed from human blood or plasma are not eligible for price negotiations.
• A drug is excluded if Medicare’s total expenditures for the drug are no more than 1% of total Part D expenditures.
• Most drugs developed by small biotechnology companies are excluded.
Not surprisingly, pharmaceutical companies see the passage of the IRA as an unfavorable development and view the Medicare negotiation process as price setting, not negotiations. The HHS and manufacturers are required to negotiate and agree on MFPs for negotiation-eligible drugs; negotiations are not optional. The drug manufacturer has 30 days to accept or counter the price offer Medicare makes. If a manufacturer refuses to cooperate with HHS or fails to negotiate in good faith, HHS can impose civil monetary penalties and an excise tax for non-compliance. It’s likely the pharma industry will challenge the law in court.
What analysts predict about industry impact and cost savings
In July 2022, the Congressional Budget Office (CBO) published the latest estimate of the budgetary effects of the health provisions in the IRA. The CBO expects Medicare’s ability to negotiate drug prices will save $102 billion in public sector healthcare costs over 10 years. During the same period, the CBO estimates an additional $62 billion in savings will result from the cap on drug price hikes at the rate of inflation.
The CBO expects manufacturers will increase launch prices for their new products to counteract the IRA’s inflation-rebate provision which slows the growth of prices over time. The analysts predict this will lead to an increase in Medicaid spending because Medicaid’s rebate program, triggered by the higher launch prices, would not fully offset the price increases. The CBO says Medicare Part B may also be affected by higher launch prices since that program uses the market’s average sales price of a drug to determine its reimbursement rate.
Analysts from Moody’s Investors Service expect there will be both price reductions for some drugs and limited price growth for other drugs. Moody’s analysts warn manufacturers that show high Medicare spending–due to their high prices, not patient consumption–will feel the impact of these regulatory changes the most.
Using the data from value-based drug purchasing arrangements
Proponents of Medicare’s authorization to negotiate drug prices believe the prescription drug provisions in the IRA are a suitable compromise that allows drug manufacturers to realize a reasonable profit while increasing the health benefits, accessibility, and affordability of prescription drugs for Medicare patients. Value-based purchasing arrangements will be an important tool at the core of this compromise.
Part of the criteria the HHS Secretary will consider when negotiating an MFP is the drug’s value to health outcomes and its cost-effectiveness compared with alternative treatments. Industry experts recognize that one of the best ways to gather insights into a drug’s performance is from the data collected in the implementation of value-based drug agreements. The data can either provide real-world evidence of a drug’s cost-effectiveness and benefit to patient health outcomes or reinforce the terms of a rebate for a drug’s underperformance.
Since negotiation-eligible drugs include those approved by the FDA at least 7 years ago, performance data may already be available from past value-based drug agreements for the first round of Medicare price negotiations. Manufacturers can prepare for future negotiations with Medicare by seeking value-based purchasing arrangements for their newer products as soon as possible after FDA approval.
The Lyfegen solution
Lyfegen, an independent global software analytics company, offers a contracting platform solution that helps health insurances, pharma, medtech, and hospitals implement value-based payment models with efficiency and transparency. Lyfegen’s Platform performs real-time, end-to-end, data collection and analysis through intelligent algorithms that can operationalize any value-based pharmaceutical purchasing arrangement and provide deep insights into a drug’s performance.
By enabling the shift away from volume-based and fee-for-service healthcare to value-based healthcare, Lyfegen increases access to healthcare treatments and their affordability.
To learn more about our services and the Lyfegen Platform, book a demo.
READ MORE
The first quarter of the year is a pivotal time for the pharmaceutical industry. As budgets are finalized and contracts renegotiated, Q1 sets the stage for how effectively organizations manage rebates, optimize costs, and deliver value.
For those navigating the complexities of pharma rebate management, Q1 offers unique opportunities to streamline workflows, review existing agreements, and ensure every rebate maximizes its potential. This period isn’t just about planning, it’s about implementing smarter processes to stay ahead in an increasingly dynamic healthcare landscape.
Why Rebate Management Deserves Q1 Attention
Q1 is the ideal time to evaluate rebate performance from the previous year. Were the agreements aligned with expectations? Did they deliver the promised value?
By assessing past performance, teams can identify underperforming agreements and opportunities for improvement. This ensures resources are allocated to agreements that drive measurable results.
Rebate workflows are often complex, requiring significant manual effort for tracking, reconciliation, and reporting. In Q1, organizations have the opportunity to implement systems that:
Streamlining workflows early in the year creates efficiencies that save time and resources throughout the year.
The first quarter is also critical for renegotiating rebate terms with manufacturers and payers. Updated contracts may include:
Teams equipped with data from previous agreements are better positioned to negotiate terms that align with strategic goals.
The Role of Technology in Pharma Rebate Management
Technology is transforming how organizations approach pharma rebate management. Tools like those offered by Lyfegen enable teams to:
For example, Lyfegen’s platform simplifies rebate tracking and provides actionable insights, ensuring organizations maximize their rebate potential while minimizing inefficiencies.
Start your year smarter!
Q1 is the time to rethink and refine your approach to pharma rebate management. With smarter workflows, clearer insights, and a focus on data-driven strategies, your team can unlock measurable savings and operational excellence.
Book a demo today to discover how Lyfegen’s solutions can simplify your rebate workflows and set you up for success in 2025.
READ MORE
Rising drug costs continue to challenge healthcare systems worldwide. In the UK, the proposed Voluntary Pricing Access Scheme (VPAG) and the NHS’s Accelerated Access Collaborative (AAC) are clear signals of the need for sustainable, transparent approaches to branded medicine pricing. These frameworks aim to control costs through 2028 while ensuring patient access to innovative treatments. Drug rebate management solutions are key to navigating these evolving frameworks. By automating complex workflows, providing real-time insights, and streamlining rebate tracking, these tools reduce administrative burdens, enhance transparency, and unlock significant cost savings.
Key Benefits of Modern Drug Rebate Management Solutions
Traditional rebate management involves resource-heavy processes prone to delays and errors. Modern drug rebate management solutions automate tasks like reconciliation, reporting, and contract tracking, enabling healthcare providers to focus on negotiating better contracts and ensuring compliance with policies like VPAG.
Rebate platforms provide granular visibility into contracts, helping organizations identify cost-effective therapies and maximize rebate potential. This transparency aligns with NHS AAC’s goal of improving value and ensuring public funds are spent efficiently.
Access to live rebate and claims data allows stakeholders to evaluate agreement performance and adjust strategies quickly. With real-time insights, healthcare providers can ensure rebates are optimized, costs are minimized, and patient access is preserved.
This capability supports NHS AAC’s commitment to accelerating access to innovative medicines while maintaining value for taxpayers.
Delayed reconciliation often creates inefficiencies and compliance risks. Modern drug rebate management solutions provide real-time rebate tracking and payment reconciliation, ensuring accurate auditing and faster resolution of discrepancies. These features are critical for meeting the transparency and accountability goals of initiatives like VPAG.
Why Now?
The VPAG and AAC frameworks prioritize:
Modern drug rebate management solutions directly address these priorities by simplifying rebate processes, supporting compliance, and enabling healthcare providers to align with evolving regulatory frameworks.
Smarter Practices in Action
Lyfegen is an all-in-one platform designed to streamline rebate workflows, improve transparency, and deliver actionable analytics. By leveraging tools like Lyfegen, healthcare organizations can navigate regulatory changes like VPAG with confidence, ensuring efficient operations and measurable savings.
Looking ahead
As healthcare systems face rising costs and increasing complexity, adopting a modern drug rebate management solution is no longer optional, it’s essential. These tools provide the automation, transparency, and real-time insights needed to comply with frameworks like VPAG while driving cost savings and supporting innovation.
Ready to simplify your rebate workflows? Sign up for a demo today to see how smarter solutions can transform your strategy.