The Inflation Reduction Act (IRA), passed in 2022, has transformed the way drug pricing will be managed in the United States. For the first time, the Centers for Medicare & Medicaid Services (CMS) will directly negotiate prices for high-spend drugs covered under Medicare. These negotiations are designed to reduce out-of-pocket costs for patients and curb overall program spending.

But beyond the political and policy headlines lies a practical question for manufacturers: What evidence will CMS rely on when deciding a fair price for a therapy?

The answer is clear—Medicare data will be central to these negotiations. Here are five reasons why:

1. Medicare Is the Population That Matters

The IRA negotiations are focused specifically on Medicare Part B and Part D drugs. That means CMS will look at how these therapies perform in their own beneficiaries. Clinical trials often exclude or underrepresent older adults, patients with multiple chronic conditions, or those on complex medication regimens. Medicare data captures exactly this group, providing the most relevant lens for CMS decision-making.

2. Real-World Effectiveness Often Differs from Clinical Trial Efficacy

While randomized controlled trials (RCTs) remain the gold standard for regulatory approval, they rarely reflect the realities of everyday use. In real-world practice, patients may have lower adherence, more comorbidities, and different care patterns than trial participants. Medicare claims data allows manufacturers and CMS to evaluate whether a drug delivers similar effectiveness in practice as it did in trials—an important factor in determining its true value.

3. Comparative Effectiveness Against Alternatives

Price negotiations will not happen in a vacuum. CMS will assess how a therapy stacks up against other available treatments. Medicare data enables real-world comparative effectiveness research, showing how patients switch between drugs, how adherence differs, and whether one therapy reduces complications or hospitalizations more effectively than others. This evidence can shape CMS’s view of a drug’s relative value.

4. Insights Into Health Equity and Subgroups

The IRA emphasizes improving equity in healthcare access and outcomes. Medicare data is uniquely positioned to shed light on how therapies perform across diverse subpopulations—by age, gender, race, ethnicity, or geography. Demonstrating effectiveness in underserved or high-risk groups can strengthen a manufacturer’s evidence package and support arguments around broader population value.

5. Capturing Downstream Economic Impact

Drug cost is only one part of the negotiation equation. CMS will also consider whether a therapy leads to downstream savings—fewer hospitalizations, reduced complications, or lower overall resource use. Medicare claims data provides a comprehensive view of these healthcare utilization patterns, enabling cost-offset analyses that go far beyond list price.

Conclusion

The IRA marks a new era in U.S. drug pricing, and Medicare data will be the foundation of the evidence CMS relies upon. For manufacturers, incorporating Medicare real-world evidence (RWE) into negotiation strategies is not just advisable—it’s essential.

At ADVI, we have access to 100% Medicare data and the technical expertise to design robust RWE studies that anticipate the CMS perspective. By leveraging Medicare data strategically, manufacturers can enter IRA negotiations with stronger evidence, clearer insights, and a better chance of securing value-based outcomes.

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