Drug Pricing Reforms in the US: US Gov’t Announces Next Implementation Steps

The US Centers for Medicare & Medicaid Services reported last month it is working on its plan for how exactly it will implement negotiations with drug manufacturers for drugs under Medicare, the US government program for individuals 65 or older. It plans to release a list of the first 10 drugs it will target for drug pricing negotiation by September.

The US Centers for Medicare & Medicaid Services reported last month it is working on its plan for how exactly it will implement negotiations with drug manufacturers for drugs under Medicare, the US government program for individuals 65 or older.  It plans to release a list of the first 10 drugs it will target for drug pricing negotiation by September.

New drug pricing reforms in the US
The US government is beginning the implementation of the Medicare Drug Price Negotiation Program under the Inflation Reduction Act, a major climate, tax, and healthcare bill signed into law in 2022 and which includes measures to address the cost of prescription drugs in the US. For the first time ever, the new law authorizes and requires the US government, through the Department of Health and Human Services (HHS), to negotiate prices for certain prescription drugs under Medicare, the US federal health insurance program for people 65 or older. That process for implementing the new law begins this year (2023), and the first negotiated prices will go into effect in 2026.

The drug-pricing measures apply to select drugs under Medicare Part D, which covers most outpatient prescription drugs from pharmacies and other pharmacy providers, and Medicare Part B, which applies to prescription drugs administered in a physician’s office or clinical/hospital outpatient setting. The Medicare Drug Price Negotiation Program limits the number of drugs to be selected for price negotiations. Under the drug-price negotiation program, the HHS Secretary is authorized and required to select a specified number of drugs from a list of 50 “negotiation-eligible drugs” with the highest Medicare Part D spending and from a list of 50 “negotiation-eligible drugs” with the highest Medicare Part B spending over a given 12-month period. It would limit the number of eligible drugs for negotiations to 10 Medicare Part D drugs in 2026, 15 Medicare Part D drugs in 2027, 15 Medicare Part B and D drugs in 2028, and 20 Medicare Part B and D drugs in 2029 and thereafter.

In addition, the program also limits the type of drugs eligible to be negotiated under the drug-pricing plan. For example, the plan applies only to “high-cost” drugs defined by levels of Medicare spending, “older” drugs, defined on the basis of the number of years from when a drug was approved by the US Food and Drug Administration (FDA), and drugs without generic-drug and biosimilar competition.

Last month (January 2023), the HHS and the US Centers for Medicare and Medicaid Services (CMS) issued an implementation plan for the Medicare Drug Price Negotiation Program Key dates for implementation include:

  • 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 be in 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, as outlined in the Inflation Reduction Act.

Drugs eligible for price negotiations
Under the Medicare Drug Price Negotiation Program, “negotiation-eligible” drugs include brand-name drugs but would exclude the following types of drugs:

  • Drugs that have a generic or biosimilar available; 
  • Small-molecule drugs with less than nine years from their approval date by the US Food and Drug Administration (FDA) and biologic-based drugs with less than 13 years from their licensure date by the FDA;
  • Certain “small biotech drugs,” defined as drugs that account for no more than 1% of Medicare spending for all drugs from all manufacturers and that account for at least 80% of total 2021 Medicare spending for all drugs from a given manufacturer (this exclusion applies only in 2026, 2027, and 2028);
  • Drugs that accounted for less than $200 million in Medicare spending in 2021;
  • Drugs with an orphan-drug designation as the only-FDA approved indication; and
  • Plasma-derived products

Maximum fair price
Under the  Medicare Drug Price Negotiation Program, a maximum fair price for those drugs subject to negotiation in a given year would be determined through several criteria. The upper limit of a negotiated price would be equal to the lower of three possible conditions: (1) the drug’s enrollment-weighted negotiated price (net of price concessions) for a Medicare Part D drug; (2) the average sales price of a Medicare Part B drug; or (3) a percentage of the non-federal average manufacturer price (referring to the average price wholesalers pay manufacturers to distribute their drugs to non-federal purchasers) based on FDA approval dates. For this condition, that percentage would be 75% for small-molecule drugs with more than nine years but less than 12 years beyond FDA approval, 65% for drugs with between 12 and 16 years beyond FDA approval, and 40% for drugs with more than 16 years beyond FDA approval.

Detailed implementation rollout
The CMS and the HHS detalied the actions it plans to take in implementing the Medicare Drug Price Negotiation Program, including when and how it will engage with stakeholders and gain input on the drugs it selects for price negotiation. Below is a timeline of key milestones in its implementation plans for the first 10 drugs subject to negotiation and for which negotiated prices would take effect in 2026.

January 11, 2023. Public engagement. The CMS released information on how it will engage members of the public (including people with Medicare, consumer advocates, prescription drug companies, Medicare Advantage and Part D plans, healthcare providers and pharmacies, and other interested parties) on key policies, make requests for information, and inform the public on other implementation timelines and milestones.

Winter 2023. Begins data-collection processes. CMS has begun to propose its data-collection processes for carrying out the first year of the Negotiation Program. These proposals will be available for public input. The first proposal will include a data-collection-process to gather information necessary to identify which drugs qualify for the small biotech manufacturer exemption in the early years, as provided for under the Inflation Reduction Act.

Spring 2023. Issue guidance for the negotiation process. CMS will issue guidance for the negotiation process for 2026 and invite public comment on key elements, such as the offer and counteroffer process between Medicare and prescription drug companies, and the methodology for applying maximum fair prices. In addition, CMS will propose its data-collection processes and invite public comments on proposals that will ask for input on data and information the federal government must collect for consideration when negotiating the maximum fair prices as well as information to be included in the offer and counteroffer process.

June 1, 2022 – May 31, 2023. Collecting spending data for negotiation-eligible drugs. The time period for which data on total expenditures under Medicare Part D will be used to determine Medicare Part D negotiation-eligible drugs for 2026 (the first year in which drug pricing will be subject to negotiation).

Summer 2023. Update guidance for the negotiation process. CMS will update its guidance as needed for the negotiation process for 2026 and data-collection requests. CMS will seek additional comment on the proposals for data and information collection.

September 1, 2023. Publishes first 10 drugs selected for negotiation. CMS will publish a list of 10 Medicare Part D drugs selected for negotiation for 2026. These 10 drugs will the first list of drugs that were subject to negotiation.

October 1, 2023. Companies’ deadline to participate in the negotiation process. The deadline for companies of drugs selected for the Negotiation Program to sign agreements to participate in the negotiation process for 2026 is October 1, 2023.

October 2, 2023. Deadline for manufacturer-specific data. The deadline for companies of drugs selected for the Negotiation Program to submit manufacturer-specific data to CMS to consider in the negotiation of the maximum fair price is October 2, 2023.

February 1, 2024. Initial officers of a maximum fair price. CMS sends initial offers of a maximum fair price with a justification for a selected drug to each company participating in the Negotiation Program. The negotiation period begins.

March 2, 2024. Deadline for accepting price offers. Companies have 30 days from receiving offers of a maximum fair price for a drug to accept the offer or propose a counteroffer, if desired.

August 1, 2024. Negotiation period ends. The negotiation period ends.

September 1, 2024. Maximum fair prices published. CMS will publish maximum fair prices for drugs selected for negotiation for 2026.

January 1, 2026. Effective date for maximum fair prices. Maximum fair prices are effective for selected drugs.

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