How to Prepare for Year-End with the IRA Looming

[Transcript]

Nick Secrest (00:06):

Hey everyone. Welcome to IPC’s presentation on how to prepare for the year end with IRA looming. The IRA as you may have heard of, is called the Inflation Reduction Act, and we’ll get into what it is, how it’s going to work in January, and the things you need to be thinking about as we head into 2026. So welcome. We’re going to go through some slides and yeah, so my name’s Nick Seacrest. I’m the Vice President of member Performance with IPC. With me today I have Kristen Nielsen, she’s the EVP and Chief Procurement Officer at IPC. She’s got a vast amount of knowledge and experience in the pharmacy business as well as we have Chris Darling. He’s the owner operator of Darling’s pharmacies as well as the owner and operator of a great tool called RX Assassins that helps stores maximize the value of their wholesale agreement.

(00:59):

So that being said, we get this question quite a bit as what is the IRA and what is MTF? So the IRA stands for the Inflation Reduction Act. It was a bill that came through the last Congress under the different administration, but among other things that it did. But the main things for us is that it mandated that Medicare would have pre-negotiated drug prices for a subset of drugs every year for I believe over 10 years or so, the first year starting in 2026. So for 2026 they picked 10 drugs that the government negotiated at lower price down to, and in the subsequent years there’ll be 15 drugs on that list for 27, which was just released a couple days ago and so on and so forth every year for the next decade or so. So you’re probably wondering what is M-T-F-M-T-F stands for Medicare Transaction Facilitator.

(02:05):

It’s a platform through CMS that helps you understand when the drugs have been pre-negotiated to lower price, how the rebate is going to be paid back to you. So there’s your standard WAC price of today. The government’s negotiated a lower price, maybe 50% less than WAC today, and when you dispense the drug, the rebate that will be paid back to the difference will be coming through the MTF or there’s a CMS platform that’s part of this. Also, there’s another company you may be hearing about recently, which came onto the scene called Beacon. My advice is let’s look at both of those. They both do different things, but how the rebates will be paid back through will be through these MTF platforms that we talked about. The other thing that we’re seeing is in the event that the manufacturer decides not to do the rebate based on the WAC difference, some are deciding to maybe just cut the WAC altogether and in that case the MTF and those platforms may not be they needed as much. So with all that being said, there’s a lot of confusion out there. I think that the moral of the story is that the MTF platforms themselves are pretty important to be signed up for. So Chris, on this one being that you’re an owner and a good operator, what is your suggestion or thoughts on the MTF themselves and what have you done to prepare for the changes in 26?

Chris Darling (03:39):

So like many pharmacy owners we’re learning as we go, there is a lot of confusion, a lot of last minute, Hey, how is this going to work? Type conversations happening. But for our stores we have went to into the MTF, we have went through the process of registering those stores, each of our stores for the MTF, I can say that it is a bit cumbersome, quite a bit of email verification through codes and getting yourself organized quite a bit of exactly matching what your N-C-P-D-P data looks like. We had some problems with one of our stores. Even I think it involved my name, it was possibly Chris instead of Christopher, and it actually kicked back and we had to change that at N-C-P-D-P. So if you’re trying to wait until December 15th to get that started, you may want to start now. We had set a goal of November 15th for us to be ready and we didn’t quite hit that, but we were pretty close really getting into MTF, getting your stores set up, making sure that the flow of payments is going to be smooth as we approach the first of the year.

(04:58):

And then most recently getting, and my understanding is Beacon will be a bit more of the, hey, this is what you expect to see with coming from the MTF or coming through your preferred platform of distributing that money to you. So we have signed up for both of them and finally got the approval that we’re set to go. But it is a process and it does take some time. So like I said, get going on it now and there will be some bumps at the beginning of the year, but we’re optimistic that we’ll get it solved.

Nick Secrest (05:38):

Chris, you have to sign up for either Beacon or the government C-M-S-M-T-F platform to get the rebate back when you fill, correct?

Chris Darling (05:46):

That is correct, yes.

Nick Secrest (05:47):

So if you don’t do it, you won’t get a rebate back and you’ll essentially lose money on those Medicare drugs.

Chris Darling (05:54):

A lot of money, yes.

Nick Secrest (05:55):

Yeah, okay, that’s helpful. Kristen, on your front, A couple of questions on the WAC changes in particular is I don’t think that the WAC changes or you tell me. I guess how many of the items on the IRA list have had a WAC change or have been announced on a WAC change, and what do you kind of see coming through the end of the month so that people can prepare for what the WAC changes could be?

Kristen Nielsen (06:20):

There’s a lot of uncertainty. So there have been some official WAC notifications that have come out on a few of the drugs. We are seeing WAC decreases on products not on that list. So maybe a manufacturer that has a product on the IRA list, maybe reducing that product as well as a few others, we’re seeing some of the information out there saying a WAC reduction is coming, but we don’t necessarily know if it’s going all the way down to the MFP. We’ve seen some products with an official notification and the WAC reduction wasn’t all the way down to the MFP, but it was still a substantial cut, 40, 50%. So we’re seeing several different things, but I don’t think we really have a real feel for exactly everything that’s coming in January.

Nick Secrest (07:11):

Okay, that’s helpful. So given that we know what these things are now, what’s the implications? So there’s really a few implications that these changes will have dependent upon which way each item goes. So the first one really is a cashflow implication in particular when we think about 26 and these items, especially when the items may we’ll have to wait for a rebate, you really want to understand today where your money’s coming from, which plans you’re using, which of these items in particular, and how much concentration you have of them under certain PBMs and what the money is that you’re making on those items. And also what the difference is going to be on the rebate. In particular, understanding your billing cycle as to when you’re typically paid by the PBMs, especially on these subset of drugs being that the wax spreads on these rebates are going to be so large in some cases 50, 60%, it’s going to have a big implication as to you having to wait to get that money in and understanding how long you have to wait and things like that. So Chris’s one for you especially, how are you guys preparing for the rebate model on those items? I think about lines of credit, I think about just the general, how long can you wait, what have you heard on how long the money’s going to take to get you, how are you guys thinking about this?

Chris Darling (08:44):

What’s going to do your business, Nick? I think you’re spot on with thinking about a line of credit at least for that transition to make sure your cashflow is going to flow really as you see those reductions in WAC and reduction in price and ultimately lower reimbursements. If you have terms that maybe outrun your dollars, you may see that all of a sudden your checkbook looks different than what it was and you may run into a little bit of problem with having the dollars for your drug bills. We’re going to run it tight down to the end of the year. I mean our plan for our regular retail inventory is to really December 31st, hopefully have no brand on the shelf. We’re not looking at IRA, we’re looking at everything, right, because we truly believe that we don’t know what it’s going to be. And you get that 11th hour curve ball of a drug that you thought you were safe on appearing to have a whack reduction and you’ve got inventory on your shelf that one is lesser in value and two, you’re just not wanting to have.

(09:53):

So reducing inventory, establishing a line of credit, and also just understanding your payment terms with your primary wholesaler and not ordering the day before the end of a billing cycle. A huge dollar inventory that you’re going to have to pay for in 14 days or seven days or whatever your terms happen to be. Trying to get past that and preparing as you get towards the end of the year, running some reports, looking at your med syncs and those type of programs and maybe there’s some drugs that you can get in your patient’s hands before the reduction and ultimately clear out of your inventory using tools like Match RX and those type of things to get rid of inventory that may be partial bottles or things that you’re not using to try to get those off of your shelf really.

(10:52):

I always like to say that most of the time for most of us, our reimbursements fixed from the third parties, but the reality is our purchasing is really where the dollars are and inventory is part of purchasing, having, I talk about it being a hundred dollars bills sitting on your shelf because that’s what a bottle of Xarelto is. That’s $500 bills that’s just sitting there as an example. And if you’re leaving them there and all of a sudden it’s worth 200 on January 1st, you’re just stuck $300 bills in the shredder and nobody wants to do that. So really massaging that inventory down to as little as possible and being really a watchdog of your own inventory is a good advice, I would say.

Nick Secrest (11:43):

Yeah, I would just add to that, I think the line of credit, especially if you have a pretty good understanding of your cashflow today in some cases, I think from what everything I’ve read about the MTFs and how long it’s going to take to get the rebate back again on those items, I think the number I keep hearing is 21 days, but the first time this has ever happened, I would be prepared for it to be longer than that, just as a safe caution. So really want to make sure we’re padded to handle the changes in what the cashflow is going to do. That’s great. Agreed. So as Chris mentioned, I think inventory is going to be a huge opportunity potentially. So like we talked about in the beginning, there’s going to be some items where the wax are going to be cut out of the gate. Some we may have to wait for rebates, but I would say especially for the items where we know hopefully soon what the WAC reductions are going to be, your year end inventory is mighty important to manage because of exactly what Chris said. So we want to make sure that we obviously understand what drugs we’re talking about here, what the decreases are going to go down to.

(12:54):

You can see there’s a list of things, but Kristen, how are you thinking about it? Obviously from our perspective we have a warehouse component, but also from the member’s perspective on these drugs. How are you measuring out what the impact is going to be and what are your tips on this one?

Kristen Nielsen (13:11):

We’re kind of mimicking or we’re mirroring what Chris just said as far as we’re trying to minimize our inventory. I believe a lot of wholesalers and distributors are probably all taking the same sort of approach there. The risk of overbuying, a lot of times we stock up in fourth quarter to prepare for first quarter, and that’s not a strategy this year at all. We need to make sure our shelves are as empty as can be as well, and the products that we feel are at risk. I think a lot of the wholesalers and distributors are doing a good job as far as flagging the items on their ordering systems of the products that they know or feel that are going to be decreased in whack. So that helps create awareness at the pharmacy level. We’ve tried to do some of those things as well, but because there is so much uncertainty, we’re taking the same approach in terms of any product that we feel that we are at risk on. We don’t want to run out of product, but we certainly can’t afford to be sitting on it if it’s going to be going down by 60% on January 1st. So we’re taking a very, very similar strategy approach.

Chris Darling (14:22):

Kristen, can I add a little bit of a caveat to that? On the pharmacy side, as you hear from Kristen, some of the, obviously as the wholesalers and secondary wholesalers prepare for these changes, as many of our contracts have compliance pieces that we have to work with, and some times that requires a moving brand that is going to become more difficult as the year end progresses and as those brands begin to evaporate. So a strategy of being aware of your compliance ahead of your compliance as you try to reach now, right? Starting early in the month rather than as the year dwindles down and your warehouse of choice doesn’t have the drugs that you’re used to. Maybe having to purchase there to keep with your compliance piece for your obligations with your primary wholesaler becomes another caveat of that. Another piece of that that you could lose rebate dollars because of the inability to hit your compliance ratios with your primary wholesalers. Just a thought.

Kristen Nielsen (15:39):

Yeah, I think that’s a really good point because I think as the month goes on, that’s exactly what you’re going to see. It’s going to get more and more difficult to find product in different places. And so thinking ahead, I think that’s really good advice.

Nick Secrest (15:57):

With that being said, it’s a perfect segue, Chris, understanding your brand purchasing, like Chris mentioned, exactly understanding your GCR, what’s the impact of this going to be? So we think about our deal structures. If certain items decrease in whack out of the gate, what does that do to my purchasing agreement? Does it increase my GCR, which it will, what is the repercussion of that? Is it better generic rebates? How do those things kind of play themselves out? And then how do you focus to almost rebalance your approach on how you go about buying and how we think about it. I think the other thing too, especially if there’s a whack decrease, everybody will kind of get a cash bump on those items, especially when they come back to do their refills in January. So you have a higher net net reimbursement in December than you would in January, and you’ll get a cashflow bump from that as well. But Chris, with all of your experience with RX assassins and helping people manage their deals, what’s some advice on how people can maximize the opportunity here with if in the event that there is a number of wack decreases out of the gate?

Chris Darling (17:15):

Right. So as a lot of us know that equation of managing compliances, brand purchases, and sometimes generic there depending on the whole sailor specific. So the advice I always give and is understanding your contract. Some of us work so hard as independent pharmacists to try to help our customers to try to fill prescriptions that make sense. But truly understanding your levers in your contract to allow you to be as most successful as possible, understanding rebates, understanding compliance, understanding how those work together is really valuable. And as we see those decreasing WAC prices, there’s a strategy that owners should think about. IPC has been both as an owner and as Ark Assassin provides members tools, I think that may be right in the mission statement ultimately, but ultimately allows their members to have those tools to help them understand compliance, understanding their agreements, knowledge is power. And in the pharmacy business, understanding what you’re doing on the purchasing side I believe is one of the most valuable tools you can have as an owner to make yourself successful. Success is built there. I truly believe that. And think it’s going to be more important now than ever before.

Nick Secrest (18:51):

Yeah. Awesome. So that being said, thank you. We hope this is helpful. If you have any questions, please don’t hesitate to reach out to [email protected]. We have a lot of resources around what we just talked about. There’s a blog post if you go to our blog listing that mentions all of the drugs that the WAC changes have been notified on and what the changes are in the future. And feel free to reach out to us. Any other questions? Thank you.

Chris Darling (19:20):

Thank you both.

Kristen Nielsen (19:21):

Thanks.