- The CMS on Wednesday released initial guidance for how it plans to negotiate prices for drugs under Medicare, a power granted to the agency by last year’s Inflation Reduction Act.
- The clinical benefits and costs of therapeutic alternatives would be the “foundational starting point” for the initial offers made in price negotiations for selected top-selling, single-origin drugs in Medicare, CMS officials said. In selecting drugs, the guidance groups together all indications and dosages of treatments with the same active ingredient, including for biologics.
- Grouping drugs this way is significant, SVB Securities David Risinger wrote in a client note, because it moves up eligibility for negotiation to the earliest approval across drug versions and prevents manufacturers from using a generic exception.
While Congress laid out the broad principles for Medicare to negotiate “maximum fair” prices for drugs, much of the process and details were left to the CMS to develop this year ahead of negotiations starting in 2024 for a first set of 10 medicines.
That initial group of drugs will be announced “no later than” Sept. 1, 2023, the guidance states, indicating the list could be made available earlier than implied in an initial timeline. The CMS can negotiate prices for up to 140 drugs by 2033, starting with only self-administered Part D drugs in 2026 and 2027, then adding physician-administered Part B therapies in 2028.
After the CMS makes its initial offer, drug manufacturers would be able to make a counteroffer and meet with the CMS up to three times. The guidance lays out the factors the CMS would use in valuing a drug. The agency would first look at the clinical benefits and net price of alternatives, then consider factors such as research costs, revenue, patent protections and federal funding, CMS officials said.
Drugmakers have warned the IRA could lead to lower investment in small molecule drugs, which are exempt from negotiation for seven years after approval, compared to 11 years for biologic, or “large molecule” drugs. (The law specifies a negotiation timeline that would make negotiated prices effective two years after a drug is selected, leading to the widely cited nine and 13-year timelines.)
CMS guidance would allow price negotiations based on the first entry of an active drug ingredient into the market, regardless of new dosages or formulations that may be later introduced.
“This approach of negotiating a single price across all dosage forms and strengths aligns with the statutory requirement to negotiate [a maximum fair price] for a selected drug,” the guidance states. “CMS believes this will also allow for a more direct comparison with therapeutic alternatives, which might have different dosage forms, strengths, and frequency of use than the selected drug.”
The CMS is soliciting public comment on its proposals and will revise the document based on that feedback this summer. The agency has had an open-door policy for input, holding monthly technical calls with drugmakers and roundtables with associations, healthcare providers and “everyone who has a perspective, experience, data that can be brought to bear,” a CMS official said.
The guidance was released the same day Medicare announced 27 drugs that manufacturers would pay penalties for after raising prices faster than the rate of inflation.