Drug Manufacturers Prepare for Change as Drug Price Transparency Looms

While much public attention across the U.S. has been paid to the Medicare drug price negotiation capabilities authorized by the Inflation Reduction Act, less visible is the uncertainty that remains over drug price reporting implementation and enforcement required by the federal government’s Transparency in Coverage rule. Lack of thorough guidance from the Centers for Medicare & Medicaid Services (CMS) regarding commercial net price reporting is creating ambiguity around expected life sciences manufacturer responses.

Policy Ambiguity Puts Pressure on Key Healthcare Stakeholders

In 2020, the U.S. Department of Health and Human Services, Department of Labor, and Department of the Treasury published the Transparency in Coverage final rule, which requires hospitals and group health plans/insurance issuers offering coverage in individual and group markets to make specific healthcare price information publicly available via comprehensive machine-readable files (MRFs). The rule was established to:

• Help people make cost-conscious healthcare decisions
• Strengthen the support consumers receive
• Reduce the potential for surprise billing
• Create a competitive dynamic that narrows price dispersion for the same items and services
• Put downward pressure on prices to lower healthcare costs

The rule requires reporting of:

While the availability of initial payer and hospital MRFs provided some data on negotiated drug rates and services, enforcement of the drug pricing file was temporarily delayed. CMS populated an initial schema of required fields and data attributes for the drug pricing file at the beginning of the Transparency in Coverage implementation, but this initial schema was removed prior to the enforcement delay. Currently, the initial schema is only available through the CMS GitHub for the Transparency in Coverage rule¹, though CMS is expected to release a new one.

Until that new drug pricing file schema is released, three things remain unclear:

• Whether payers will broadly use the archived drug pricing file schema
• How much drug price reporting/detail granularity will be required with a new schema, when/if available
• How CMS will enforce drug pricing file compliance

All of these create risk for both plan sponsors and manufacturers. Without clear guidance, supplemental analysis will likely be needed to extract meaningful implications and impact to payer, hospital, and manufacturer strategies. Manufacturers may need to make analytic investments to obtain value from the incoming data when it becomes available. Ahead of this, it’s likely that self-funded plans responsible for drug price reporting will pressure their pharmacy benefit manager partners to take on that role.

Guidehouse consultants have been tracking early drug pricing transparency files produced by such payers as Optum and Blue Cross Blue Shield of Texas using the initial schema, and we expect other payers to follow suit when more guidance is available.

A Cascading Impact

Currently available hospital and payer data files are already providing insights into how payer access and reimbursement structure changes may affect providers’ financial health and contracting priorities, including net-cost recovery considerations. They can also reveal under-prescribing patterns that could indicate which products might be afforded better payer reimbursement rates. Accurate assessment of this public data can help manufacturers better understand their positioning and impact on providers relative to competition.

Once drug price transparency data files are released on a wide scale, they will have the potential to immediately affect access positioning, launch strategy, and drug pricing strategy for pharmaceutical products in the commercial book of business. Availability of this data may affect manufacturer and payer contractual relationships, especially ahead of commercial product launches in competitive situations.

For manufacturers, this may mean that increased pressure is placed on contracting and rebate negotiations across therapeutic areas—especially in crowded markets with minimal clinical differentiation or entrenched incumbent competitors. Despite the current reporting requirement ambiguity, the data may give payers a deeper understanding of historical net pricing strategies by key manufacturer partners relative to other peer payer organizations—providing them with greater leverage in contract negotiations.

With broader use of price transparency data in the long-term, both manufacturers and health plans may face additional media attention, employer and consumer price shopping, and scrutiny surrounding pricing.  

Making a Comprehensive Plan

To adequately prepare for potential competitive scenarios as the transparency landscape evolves, drug manufacturers should consider:

• Investing in comparative effectiveness tools to pinpoint where they can add value and maintain market share.
• Optimizing their infrastructure and resources to enable common access and accurate interpretation of price transparency data. Payer MRFs tend to be much larger than hospital MRFs due to the method and scale by which payers are required to publish negotiated rates. Under current payer layout constraints, payer MRFs contain a vast amount of duplicative information because they must express all services across every contracted provider for both institutional and professional claims. Additional resources could be required to fully understand payer data limitations and accurately interpret the impact to manufacturer portfolios.
• Monitoring and developing data access strategies to protect their market positioning for current and pipeline products before preparing for launch. Monitoring opportunities and risks across the portfolio and developing a price transparency strategy as a critical part of launch readiness can help mitigate the risks associated with the coming large-scale MRF availability.
• Forming analytic partnerships for accessing and utilizing these large data files to gain possible competitive advantage.
• Undertaking a deep assessment of contracting practices to gain a more thorough understanding of the sweeping impact that price transparency may have on current and future contracts across the value chain. This should include evaluating the broader implications to portfolio dynamics as well as the downstream implications on future price-setting and contracting.

Drug price transparency could have expansive cross-functional implications for pharmaceutical stakeholders. That’s why it’s crucial for manufacturers to understand how to use the ensuing data to make appropriate infrastructure investments, manage risk, and optimize their portfolio to outmaneuver the competition.

Navigating the Evolving Landscape

Our team has deep experience with dissecting and interpreting hospital and payer transparency files. Applying that expertise and our analytic capabilities to clients’ contracting, pricing, and launch strategies, we help them navigate hospital and payer data and determine risks and opportunities for key accounts by understanding customer net-cost recovery as well as average sales price implications.

As the policy landscape evolves, we continue to closely monitor price transparency guidance from CMS and other entities—generating actionable strategies for clients to adapt, position their portfolios, and launch assets ahead of the competition in a dynamic data environment.