The revised guidance comes amid lawsuits filed by drug manufacturers and industry groups, which claim the Inflation Reduction Act is unconstitutional. Prices negotiated will be effective as of 2026.
Pictured: a Medicare enrollment form/iStock, zimmytws
Friday, the Department of Health and Human Services released new guidance from the Centers for Medicare and Medicaid Services as part of its efforts to implement the Inflation Reduction Act’s drug price negotiation provisions.
Under the IRA’s drug price negotiation program, designed to reduce the high costs of prescription medications, Medicare will negotiate directly with drug manufacturers with the new guidance outlining how CMS will reach a maximum fair price (MFP). The revised guidance was informed by public input received by the agency after releasing its initial memorandum in March 2023.
For drug companies who participate in Medicare, negotiations will take place for lower prices on selected high-cost drugs without generic or biosimilar equivalents available. CMS will consider the clinical benefit of the drug, to what degree it meets an unfilled medical need, its impact on Medicare recipients, among other factors such as research, development, production, and distribution costs.
“CMS will review both Prescription Drug Event (PDE) data and Average Manufacturer Price (AMP) data reported by manufacturers. The determination whether a generic drug or biosimilar is marketed on a bona fide basis will be based on a totality of the circumstances, including PDE and AMP data,” states the revised guidance.
The first 10 drugs to be negotiated will be announced by CMS by September 1, 2023, with the first round of negotiations to take place in 2023 and 2024. The negotiated prices would become effective as of 2026.
CMS will publish a public explanation of the MFP for initial price applicability in 2026 for each selected drug by March 1, 2025, according to the guidance.
In the document, CMS clarified that a drug with FDA designations “for more than one rare disease or condition will not qualify for the Orphan Drug Exclusion, even if the drug has not been approved for any indications for the additional rare disease(s) or condition(s) and that CMS will only consider active designations and active approvals when evaluating a drug for the Orphan Drug Exclusion.”
The move comes amid fierce industry backlash. Initial criticism from drug manufacturers concerned about the “chilling effect” on research and innovation has now been replaced by formal legal challenges, with lawsuits against the Biden administration filed by Merck & Co, U.S. Chamber of Commerce, Bristol Myers Squibb and PhRMA—all claiming the IRA’s drug negotiation provision is unconstitutional.
However, the Biden administration disagrees.
“Pharmaceutical companies have made record profits for decades. Now they’re lining up to block this Administration’s work to negotiate for better drug prices for our families. We won’t be deterred,” HHS Secretary Xavier Becerra said in Friday’s press release.
The IRA bill passed the U.S. Senate last year split along party lines, with Vice President Kamala Harris casting the tie-breaking vote. The original bill would have forced drug companies to offer rebates if drug prices exceeded inflation, but this measure was defeated. The bill does include a $2,000 cap on out-of-pocket drug expenses for Medicare recipients, though this measure doesn’t take effect until 2025.
Connor Lynch is a freelance writer based in Ottawa, Canada. Reach him at lynchjourno@gmail.com.
