The IRA discounts are announced. What are the implications for service companies and does anyone see the irony?

Today FirstWord and other outlets provided coverage of the impact of the Inflation Reduction Act (IRA) price negotiations for the first ten drugs to go through the process. Price reductions are between 38% and 79% (for Januvia) and is expected to save $1.5bn in out-of-pocket costs for patients. However, drug pricing and who gets what part of the money is complicated with many intermediaries such as PBMs being involved. What does this mean to pharma and the service companies that support them?

Medicare will save $6bn in 2026

It already feels like this process is rolling on, with another ten to fifteen drugs about to have their prices negotiated in the next 12 months. Medicare is certainly saving money, so who is paying the price. This may only become clear over time. Initially we know that pharma will lose income, others too. However, the role of some intermediaries such as PBMs in the process of providing medicines to patients is being highlighted by other players recognise they won't beat the government but may be able to strip out ineffective (some say immoral) costs out of the system, keeping more of the reduced price for themselves. Other processes practiced by pharmacies and other players are under scrutiny as many believe they add costs without adding benefit.

A consequence of the focus on price has been to lift the veil from some unhelpful practices

By focusing on prices the US government has made the pharma industry focus on the process and costs of taking a medicine from the manufacturer to the patient. This has exposed some unhelpful practices and is likely to remove some excess costs in the system. While patients may not (but they may) see this in their costs, it will create a more efficient system overall, which will ultimately benefit patients. Pharma, with some justification, has complained about the excess costs due to middlemen and now, after decades of nothing happening, things are changing.

In fact the US patient may benefit in a number of ways as the consequences of this process work their way through the system. Reduced co-pays of course, reduced price increases over time, fewer bills to pay and a less complex system providing more transparency, potentially helping them to make better insurance choices and even reducing (or at least not increasing so rapidly) premiums. For the US patient who has suffered incredible increases in premiums way beyond the growth of their income with rapidly reducing benefits over many years this would be a welcome improvement.

BMS has said the price reduction does not value Eliquis correctly

Pharma has complained. BMS has stated that the price reduction for Eliquis does not recognise the value the drug brings. One wonders what they will do about this? It's hard to believe they'll stop making Eliquis available. What they are doing is squeezing the middle-men, removing costs from the system, driving AI innovation and cost reduction in everything from early research to medical communications and these are the natural business consequences of an industry seeing a major challenge to its margins. Some people in service sectors such as med comms and market research think the market for their services has reduced by around 15% in 2 years. Whether these changes are enough to maintain the traditional high margins in pharma only time will tell, though it seems likely that pharma will remain an attractive investment option.

For service companies the new normal has arrived

$6bn saved so far, more next year and more after that. In a sense the US government has simply reset the affordability of medicines that were becoming too expensive for the majority of patients. Whatever portion of this comes from pharma we will know over time. That the pharma cost-saving focus is well into operation is well known across R and D, Operations and commercial activities. In the sphere I spend most of my time, commercial services such as med comms, CI, MR, MA and consulting my personal guess is that the overall market is down by 10-15%. Some say more. This is not a blip, it is a resetting of the rules of the game, and service companies should consider what to do about it, things will not go back to what they were. Ask the recruitment companies, ask the undifferentiated companies where cuts have been significant, ask those companies with one major client that has made significant cuts.

I find some of this ironic

For a long time I have wanted to publish something about those service companies that tell you in their blurb that everything they do is focused on improved patient care, with the patient at the centre of everything they do. Really? If they mean they will not knowingly do anything that might harm patients, I of course agree, though not telling lies is not the same as improving patient care. They are often a work for hire, and I have never heard of an agency turning down work because it was not in their opinion in the best interests of patients, nor deciding not to work with a client because their drug is not the best for patients, nor building in any metrics into their work to assess if patient care was meaningfully improved, nor proposing a programme that provides an independent review of all available treatment options (CME is a tiny part of this market). I may be an old commentator, but the rhetoric of patient centricity in service companies seems trite to me or at its best it simply means "Do no harm". The very rationale for many of these service companies is to help their client maximise the commercial opportunity for their drug. Of course there is nothing wrong with this as long as it is (and it usually is) practiced within clear and transparent boundaries. I fail to see where the patient is (accepting the do no harm mantra) in this business relationship.

The same can be said of pharma and biotech. That's for another article.

And so we come to today, where arguably US patient outcomes will improve, not least because they are more likely to afford the medicines they were prescribed. The US data on historic non-filling of prescriptions because of costs is horrific and maybe this will improve. This improvement in patient care looks like it will mean some service companies get less work as pharma decides not to proceed with programmes that they decide are not a priority to their business. Should these service companies be pleased that patient outcomes are likely to improve despite the pain their company may be feeling? There's the irony.