On January 11th, the Centers for Medicare and Medicaid Services (CMS) announced a timeline for implementation of the Inflation Reduction Act’s (IRA) drug pricing provisions, including price negotiations for a limited subset of drugs. Interestingly, CMS is enlisting the public’s feedback throughout the process of price negotiations between Medicare and biopharmaceutical manufacturers. As CMS asks for the public’s help, several unresolved issues remain.
One of the main drug pricing provisions contained in the IRA is allowing Medicare to negotiate with drug makers the prices of certain outpatient (Part D) and physician-administered (Part B) drugs. To be selected for negotiation, the following three criteria must apply: 1. By the time negotiated prices are enacted, the number of years drugs must have been on the market since the start of their exclusivity period is 9 for small molecules and 13 for large molecules; 2. Drugs do not face generic or biosimilar competition; 3. Drugs appear in the top 50 of Medicare spend (either Part D or Part B).
CMS has released information on how it will be engaging the public on defining, operationalizing, and implementing key policy provisions, including direct price negotiations. Here, among others, the “public” refers to Medicare beneficiaries, healthcare providers, patient advocates, drug manufacturers, Medicare Advantage plans and pharmacy benefit managers (PBMs), and pharmacies.
Specifically, CMS is releasing guidance for the negotiation process and timeline between now and 2026, and inviting the public to comment on key elements, such as the offer and counteroffer process between Medicare and drug makers, and the methodology for determining what the Inflation Reduction Act calls “maximum fair prices.”
Furthermore, CMS is inviting public comments on ways in which the agency will collect data, the types of data required for consideration when negotiating the maximum fair prices, as well as information to be included in the offer and counteroffer process.
The bill includes criteria that can be used in these price negotiations. For the purposes of negotiating the maximum fair price of a selected drug, the Secretary shall consider, among others, the following factors:
- Research and development (R&D) costs of the drug, and the extent to which the manufacturer has recouped R&D costs;
- The degree to which a drug meets unmet medical needs for a condition for which treatment or diagnosis is not addressed adequately by available therapeutics;
- The extent to which a drug represents a therapeutic advance as compared to existing therapeutic alternatives;
- Comparative effectiveness of the drug in question, taking into consideration the effects on specific populations, including the disabled, the elderly, and the terminally ill.
By September 1, 2023, CMS will publish the first 10 Medicare Part D drugs selected for the Medicare Drug Price Negotiation Program. The negotiated maximum fair prices for these drugs will be announced by September 1, 2024, and prices will go into effect starting January 1, 2026.
In future years, CMS will select for negotiation 15 more Part D drugs for 2027, 15 more Part B or Part D drugs for 2028, and 20 more Part B or Part D drugs for each year after that. I’ve added italics to the word “more” for emphasis. This suggests a cumulative count, which may be problematic for several reasons.
First, it’s quite possible that several of the 10 Part D drugs selected for negotiated prices in 2026 are not be eligible for implementation of maximum fair prices in 2027. There’s a dynamic process here in which a number of drugs selected for negotiated prices in 2026 may face generic or biosimilar competition in 2027. Alternatively, a small number of drugs may no longer be in the top 50 in Medicare D spend. It’s unclear whether and how this is accounted for in the number of Part D drugs, 15, that the legislation stipulates will be selected for fair pricing in 2027. There will likely be a few drugs dropping out each year and being replaced by others, as certain pharmaceuticals become ineligible. If, for example, two drugs from 2026 no longer qualify in 2027, by the cumulative count logic these would need to be replaced by two additional medicines by selecting 17 products for negotiated prices in 2027, making the aggregate number 25. Effectively, if CMS indeed means a cumulative count, CMS will be selecting 10 in 2026, 25 in 2027, and 45 in 2028, the composition of which will be determined annually by how much replacing will have to happen after 2026 and 2027.
Second, and perhaps more importantly, doing a cumulative count leads to some logical issues starting in 2029 or at the latest, 2030, given the fact that each drug is selected from the top 50 in Medicare spend. Apart from the fact that it won’t be easy to find that many drugs that meet the selection criteria laid out in the IRA and are non-exempt,* there’s confusion surrounding how, starting in 2029, CMS will be able to select additional drugs from the top 50 in Medicare Part D expenditures if by then there are already more than 50 Part D drugs with negotiated prices. All drugs will have been chosen initially from the top 50 in Part D spend. Of course, slight changes in the composition of the top 50 do occur from year to year. But, even after accounting for some annual drop-outs and replacements, it won’t be possible, particularly after 2030, to add more drugs to the list of negotiable products.
What is implied by the timeline posted by CMS is that there will be 80 Part D and Part B drugs in 2030, 100 in 2031, 120 in 2032, and so on and so forth. Surely, by as early as 2030 – when CMS says it will choose for negotiation 20 additional drugs it will be enacting maximum fair prices for in 2032 – it will be impossible for CMS to make this selection.
As CMS works to operationalize the law in the coming months, these issues regarding aggregation of numbers of drugs to be selected for price negotiation need to be sorted out unambiguously.
When I first read the text of the law in August of last year, I did not interpret it as implying a cumulative tally. This is partly because logically it didn’t make sense to do so, especially once CMS has reached a certain total number of drugs. Nonetheless, the posting of the CMS memorandum yesterday suggests the agency does adopt a cumulative interpretation. This leaves several key questions unanswered.
Third, there’s the issue of feasibility of implementing the three main pillars of the IRA with merely an additional 100 full-time equivalent (FTE) positions at CMS. Hiring 100 FTEs would appear to be a gross underestimate of what will be required to properly implement the the IRA’s drug pricing provisions. The inflationary rebates provision alone is a very large task, as is Medicare’s restructuring of Part D, which not only impacts drug manufacturers, it also has far-reaching implications for payers and PBMs. If CMS thinks it can also handle the delicate and complicated price negotiations for 60 drugs by 2029 with such a limited staff (let alone more than 200 drugs by 2036, if it can manage to sort out the aggregation problem described above), I believe it’s seriously underestimating the magnitude of the tasks laid out in the IRA.
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