On March 15, 2023, the Centers for Medicare and Medicaid Services (CMS) issued initial program guidance related to implementation of the Medicare Drug Price Negotiation Program. CMS requested public comments on selected portions of the guidance by April 14, 2023. The criteria set forth in the guidance for selection of drugs subject to negotiation is final and not subject to comment, as the agency must select and publish the list of drugs subject to negotiation by September 1, 2023.
Authorized under Sections 11001 and 11002 of the Inflation Reduction Act (IRA), the Negotiation Program permits Medicare to negotiate the price of prescription drugs. In the March 15 guidance, CMS laid out the requirements and parameters of the Negotiation Program. It also announced the next steps for implementation of the Negotiation Program’s rates, which will take effect in 2026.
In a related development also on March 15, CMS released a list of the first Part B drugs to be subject to inflation rebates under the Medicare Prescription Drug Inflation Rebate Program, which targets prescription drugs whose prices have risen faster than the rate of inflation and will result in lower coinsurance amounts for Medicare beneficiaries. For more information on the Rebate Program guidance, click here.
Negotiation Program Guidance
Prior to enactment of the IRA, the Secretary of the US Department of Health and Human Services was prohibited from interfering in drug manufacturer price negotiations with pharmacies and prescription drug plan sponsors under Medicare Part D (known as the “noninterference” clause). Similarly, the Secretary was not authorized to negotiate drug prices covered under Medicare Part B.
The IRA authorized Medicare to negotiate drug prices for certain high expenditure, single source brand-name drugs or biologics covered under Medicare Part D (starting in 2026) and Part B (starting in 2028) for the first time in the history of the Medicare program. Beginning in 2026, up to 10 Part D drugs will be subject to negotiation. Thereafter, CMS will select up to 15 Part D drugs for negotiation for 2027, up to 15 Part B or Part D drugs for 2028, and up to 20 Part B or Part D drugs for 2029 and subsequent years. Negotiated prices are referred to as the maximum fair price (MFP) of the drug. Manufacturers of drugs with negotiated MFPs will be required to provide pharmacies, mail order services and other dispensers access to the MFPs for drugs they dispense to individuals enrolled in a Part D plan. Part D plans will be required to provide their enrollees with access to the MFPs (plus a dispensing fee). Beginning in 2028, manufacturers will also be required to provide hospitals, physicians and other providers access to the MFPs for drugs they furnish or administer to individuals enrolled in Part B.
Drug Selection Criteria
In the Negotiation Program guidance, CMS discusses the requirements and procedures that it will use to select the subset of drugs that will be subject to price negotiation. Once the drugs are selected, the first round of negotiations will occur during 2023 and 2024, resulting in prices effective in 2026. CMS will publish the list of the first 10 selected Medicare Part D drugs on September 1, 2023.
Drugs eligible for inclusion on the list of drugs subject to negotiation include those approved by the US Food and Drug Administration (FDA) under a new drug application on or before September 1, 2016, and drugs that were not FDA-approved under an abbreviated new drug application. Also eligible are qualifying single source biologics under a biologics license application that have been licensed for at least 11 years and are not the reference product for any biologic that is licensed or marketed as a biosimilar. CMS will rank the qualifying drugs in order of most expenditures for the date of service between June 1, 2022, and May 31, 2023, and will select the top 10 drugs for drug price negotiations.
Excluded drugs include orphan drugs; low-spend Medicare drugs resulting in less than $200 million in combined Medicare Parts B and D expenditure for dates of service between June 1, 2022, and May 31, 2023; and plasma-derived products. CMS will also remove drugs that qualify under an exception for small biotech companies (generally applicable to manufacturers of drugs comprising less than 1% of total Part D drug expenditures and more than 80% of Part D expenditures for drugs marketed by the drug’s manufacturer).
For purposes of setting a price during the negotiation process, CMS intends to base the negotiations on a single price, rather than negotiate on multiple MFPs for the same drug. CMS seeks comment on its approach to identifying this single negotiating price, which CMS intends to base on the cost of a drug for a 30-day supply across all forms and strengths of the drug. The MFP for a drug is capped at a ceiling price. The ceiling for the MFP for a selected drug will be the lower of either an amount equal to the sum of the plan specific enrollment weighted amounts, or an amount equal to the applicable percent of the non-federal average manufacturer price. In order to determine which of the two methods of calculating the MFP ceiling will be used, CMS will aggregate the amounts determined for each applicable NDC-11 for the selected drug to calculate a single amount, separately for each methodology, across dosage forms, strengths and package sizes of the selected drug. The initial offer of the MFP will be at or below the ceiling price, based on factors set forth in the guidance, including clinical benefit and the availability of therapeutic alternatives. The ceiling price is set at the lower of the Part D net price or the average sales price of therapeutic alternatives for the selected drug.
CMS will make an initial written offer to the manufacturer with the proposal for the MFP no later than February 1, 2024. The initial offer will include a concise justification for the offer based on the factors described in the MFP development process, such as research and development costs, current unit costs of production and distribution, federal financial support for novel therapeutic discovery and development, data on pending and approved patent applications, and market data and revenue and sales volume data for the selected drug. The manufacturer may then prepare one optional written counteroffer, which must be submitted to CMS no later than 30 days after the date of receipt of CMS’s written initial offer. The manufacturer’s counteroffer must include a justification of the counteroffer based on the same factors. The manufacturer should describe reasons it believes the data it submits, or other available data related to the selected drug and its therapeutic alternatives, does not support CMS’s initial written offer. If CMS does not accept the manufacturer’s counteroffer, CMS will propose up to three possible in-person or virtual negotiation meetings between the manufacturer and CMS. After the negotiation meetings, CMS will prepare a final written offer. A final agreement will be reached upon the manufacturer’s acceptance of CMS’s initial written offer, or CMS’s acceptance of the manufacturer’s counteroffer. All negotiations must end by August 1, 2024.
Other Areas of Guidance
CMS also explains and seeks comment on several aspects of the Negotiation Program, including the terms and conditions contained in the manufacturer agreement, the process for the offer and counteroffer exchange between CMS and manufacturers, the dispute resolution process for specific issues, and the process for compliance monitoring and imposition of civil monetary penalties (CMPs) for violations.
The guidance addresses the negotiation process related to 340B drugs, stating that “a manufacturer with an agreement with the Secretary under the 340B program is not required to provide a 340B covered entity with access to the MFP of a selected drug with respect to an MFP-eligible individual who is eligible to be furnished, administered, or dispensed such selected drug at the covered entity if the 340B ceiling price is lower than the MFP for such selected drug.” However, a manufacturer subject to the 340B program is required to provide a 340B covered entity with access to the MFP of a selected drug if the MFP is below the 340B ceiling price for such selected drug. If it is later determined that the 340B ceiling price is lower than the MFP for the selected drug, the manufacturer would be required to provide the covered entity with the difference between the MFP and the 340B ceiling price.
The guidance also describes the process for the issuance of CMPs for violations under the Negotiation Program. CMS states that for any manufacturer that knowingly provides false information under certain procedures of the Negotiation Program, a CMP equal to $100 million will be issued for each item of such false information submitted. CMPs will also be issued to manufacturers that fail to provide access to a price that is less than or equal to the MFP, such as a CMP equal to 10 times the amount equal to the product of the number of units of such drug so furnished, dispensed or administered (during the relevant year) and the difference between the price for such drug made available and the MFP. Manufacturers will also be subject to a general CMP equal to $1 million for each day a manufacturer fails to comply with requirements that CMS determines to be necessary for the purposes of administering the Negotiation Program.
Manufacturers that fail to comply with certain Negotiation Program deadlines and other requirements of the Negotiation Program could face removal of Part D or Part B coverage and excise tax liability. The Internal Revenue Service is expected to issue guidance separately.
Just a few hours before CMS released the Negotiation Program guidance, it also announced the list of the first 27 drugs to be subject to Medicare inflation rebates due to the drugs’ prices rising faster than the rate of inflation during the last quarter of 2022. As of April 1, 2023, drug manufacturers are required to pay inflation rebates for the Part B drugs listed, and in turn Medicare beneficiaries will have their coinsurance lowered for such drugs. Medicare beneficiaries will see a decrease in the out-of-pocket costs for the listed drugs. Decreases will range from $2 to as much as $390 per average dose.
CMS will update this list every quarter.
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McDermott is closely monitoring all CMS developments under the IRA. Please do not hesitate to reach out to the McDermott team if you have any questions about either the IRA negotiation or rebate provisions, or if you would like assistance in preparing comments to the Negotiation Program guidance.