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The Centers for Medicare and Medicaid Services (“CMS”) released a list of the first ten drugs whose prices will be subject to negotiation for Medicare patients, a plan implemented under the Inflation Reduction Act (“IRA”).
Not to be cynical, but like any venture the government is involved in, it is hard to make sense of it.
First, CMS needs permission from Congress to negotiate prices? How does anyone operate without the ability to negotiate or shop in the marketplace? But that has been the law for decades.
Second, the drug companies (“Companies”), under the IRA are required to negotiate. The government is requiring them? Based upon a 90% tax if the Companies refuse to negotiate the Companies have no choice but to negotiate.
Some context: Companies are private industries spending money on research for new drugs. This is offset by patents, which legally restrict competitors from selling generics until the Companies can recoup their investment, make a profit and have capital for future research. Or by acquisition of other companies which have developed drugs.
The negotiation is focused on those drugs for which there are no generics and are still protected by patents. So two competing interests are in play involving two different laws: The IRA, which aims to lower drug prices by coercion and patent law which incentivizes Companies to develop new drugs to cure the sick by giving the Companies a limited period of time to recoup the cost of research and make a profit.
The greater issue may be about patent monopolies. After all, drugs are usually cheap to manufacture. Hence generics.
How will negotiations work?
CMS selects the drugs subject to negotiation. Ten were announced early in September.
Companies have until October 1 to decide whether to participate in the talks. If they decline, they will be subject to an excise tax of up to 90 percent on product sales.
If a Company does agree, it will meet with agency officials this Fall to provide product data. CMS has said it plans to hold patient-focused listening sessions on each of the ten drugs.
CMS plans to send an initial price offer to companies by Feb. 1, 2024. Then the drugmakers have to either accept the offer or decide to leave Medicare and Medicaid.
In developing an initial offer, CMS will start with evidence related to therapeutic alternatives and then consider other factors, such as “cost of research and development and production and distribution of the selected drug.”
Through Spring and Summer of 2024, CMS will hold three meetings with each Company to agree upon a price.
Negotiation ends on August 1, 2024 and a month later CMS will release the final price.
CMS must explain its decision on the final price by March 1, 2025.
For 2027, CMS can negotiate the price on another 15 drugs. In 2028, the agency can negotiate on 15 additional drugs. For every year after 2028, the agency can select 20 drugs for negotiation.
How will CMS determine if a generic is available?
The availability and “bona fide” marketing of a generic or similar drug will eliminate a drug from negotiation. CMS guidance explains the determination of marketing on a bona fide basis will be based on the “totality of circumstances.” CMS intends to conduct ongoing assessments to determine whether “meaningful” competition exists and ensure marketing on a bona fide basis.
CMS will adjust the starting point for the initial offer based on the “totality” of evidence about the benefit the targeted drug provides relative to its alternatives.
If an agreement on the price is not reached by August 1, 2024 manufacturers may be subject to the 90% excise tax according to the IRA. Companies that choose not to negotiate will be permitted to withdraw drugs from coverage under Medicare and Medicaid to avoid paying the excise tax.
Will Medicare recipients benefit from drug price negotiation?
It is uncertain how many Medicare beneficiaries will see drug costs reduced and the amount of savings, since both will depend on which drugs are subject to negotiation and the actual cost reduction compared to what the price would be on the open market.
Under the IRA a drug cannot be selected for negotiation until seven years to eleven years after it is on the market depending upon its formula. In the future, this will incentivize higher initial prices, so drug companies can recoup their investment early before the CMS can select them for negotiation. For now, the three-year lag between selection and price reductions involves some guessing that the drug will not have a generic to compete with or is replaced before the three-year process is complete.
It is theoretically possible that by 2026, only three drugs of the ten selected drugs will not have generic competition and will be eligible for negotiation. That number will likely be higher, but it is very likely that it will not be ten. And under the IRA CMS cannot pick a replacement drug, if one of the ten selected drugs is replaced or becomes obsolete. The opportunity to negotiate is lost.
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