CMS intends for the initial guidance to apply to the Drug Price Negotiation Program for initial price applicability year (IPAY) 2026, and, thus, the guidance is largely focused on drugs covered under Part D, as only those drugs are eligible for negotiation for that year.  Further, to “facilitate the timely implementation” of the program for that year, CMS is soliciting feedback on all portions of the initial guidance except for the section governing the selection of drugs for negotiation for IPAY 2026.

The text of the IRA is available here, and the guidance is available here, with a Federal Register announcement here.  CMS also issued a press release and a fact sheet related to the guidance.  We previously addressed the underlying legislation in alerts available here and here.

What drugs are eligible for selection for negotiation?

• The universe of drugs eligible for selection for negotiation generally include:

  • Drug products.  Food and Drug Administration (FDA)-approved drugs for which at least 7 years have elapsed from approval and for which there is no generic on the market (as determined under a bona fide marketing standard).  CMS considers as the same qualifying single source drug all dosage forms and strengths with the same active moiety and the same holder of a New Drug Application (NDA), inclusive of products marketed pursuant to different NDAs.  CMS also considers as the same qualifying single source drug any repackaged or relabeled products, authorized generics, and multi-market approval products marketed under the same NDA(s) held by the same manufacturer.
  • Biologics.  FDA-licensed biologics for which at least 11 years have elapsed since licensure and for which there is no biosimilar on the market (as determined under a bona fide marketing standard).  CMS considers as the same qualifying single source drug all dosage forms and strengths of the biologic with the same active ingredient and the same holder of the Biologics License Application (BLA), inclusive of products that are marketed under different BLAs.  CMS also considers as the same qualifying single source drug any repackaged or relabeled products authorized biologics, and multi-market approval products marketed under the same BLA(s) held by the same manufacturer.

  • Fixed combination drugs.  For a fixed combination drug with two or more active moieties/ingredients, CMS considers the distinct combination of active moieties/ingredients as one active moiety/ingredient for purposes of identifying a qualifying single source drug, such that all formulations of a distinct combination offered by the same NDA/BLA holder will be considered to be the same distinct product.  A product containing only one (but not both) of the active moieties/ingredients that is offered by the same NDA/BLA holder will not be considered to be the same single source drug as the fixed combination drug.

• The universe of drugs eligible for selection for negotiation exclude:

• • Certain orphan drugs.  The orphan drug exclusion applies to drugs that are designated as orphan drugs for only one rare disease or condition and for which the only approved indications are for that disease or condition.  In the guidance, CMS emphasizes that all dosage forms and strengths of the drug must meet the criteria for exclusion.  At the same time, the agency indicates that it is considering whether there are actions that it can take to support orphan drug development.

  • Low Medicare spend drugs.  The low Medicare spend drug exclusion applies to a drug for which total Parts B and D expenditures over a specified period are less than $200 million, increased over time by an inflation factor.  CMS states that it will identify low Medicare spend drugs using Part D prescription drug event (PDE) data and Part B claims data.

  • Plasma-derived products.  The plasma-derived blood product exclusion applies to a biologic that is derived from human whole blood or plasma.  CMS states that it will use the FDA Approved Blood Products website to identify qualifying products and the FDA Online Label Repository to verify if such a product is derived from whole human blood or plasma.

  • Small biotech drugs.  The exclusion for small biotech drugs applies only for IPAYs 2026, 2027, and 2028.  Under the guidance, small biotech drugs:

    • Include a drug of a manufacturer:

      • Whose total 2021 Part B or D drug expenditures constitute no more than 1 percent of total 2021 Part B or D expenditures for all drugs of all manufacturers; and

      • Whose total 2021 Part B or D drug expenditures constitute at least 80 percent of total 2021 Part B or D expenditures for all drugs of that manufacturer.

    • Exclude:

      • A drug of a manufacturer that, after 2021, is acquired by another manufacturer that does not meet the definition of a “specified manufacturer” under the new Part D Manufacturer Discount Program established under the IRA; and

      • A new formulation (including an extended release formulation). 

To be eligible for consideration for the Small Biotech Exception for IPAY 2026, a manufacturer must submit a Small Biotech Exception request as specified in future guidance.  CMS anticipates that the deadline for submission will be June 2023. 

• Delay in selection of biologic on account of anticipated biosimilar market entry. 

  • Generally speaking, CMS must delay selection of a biologic that would otherwise be selected for negotiation by one or two years where:

    • The biologic would have been an extended-monopoly drug if selected,

    • The delay is requested by a biosimilar manufacturer,

    • The biosimilar manufacturer submits specified information,

    • CMS determines that there is a high likelihood that the biosimilar will be licensed and marketed within two years of what otherwise would be the selected drug publication date, and

    • Certain disqualifying circumstances are not present.

  • CMS will require a biosimilar manufacturer that believes that a reference biologic is likely to be selected for negotiation for IPAY 2026 to initiate a request for a delay by May 10, 2023, and to complete such request by May 22, 2023.  The biosimilar must be licensed or the application for licensure must be accepted by FDA by August 15, 2023, for the request to be granted.

  • To grant the request, CMS must find a high likelihood that the biosimilar will be licensed and marketed by September 1, 2025.  A high likelihood will be found where the FDA has accepted or approved an application for licensure by the biosimilar manufacturer and there is clear and convincing evidence that the biosimilar will be marketed within the specified time frame, as established by a showing that:

    • There are no patents likely to prevent the biosimilar from being timely marketed, and

    • The biosimilar manufacturer will be “operationally ready” to market the biosimilar within the specified time period.

  • A request will not be granted where, among other things, there is an agreement between the biosimilar manufacturer and the reference biologic manufacturer (1) requiring or incentivizing the request for a delay or (2) directly or indirectly placing limits on the quantity of the biosimilar that can be sold.

How will drugs be selected for negotiation?

• For IPAY 2026, CMS will identify the 50 qualifying single source drugs with the highest total Part D expenditures over a specified 12-month period (June 1, 2022, through May 31, 2023) using PDE data.

• CMS will then rank these drugs, highest to lowest.

• The 10 highest ranked drugs on this list will be selected for negotiation, unless removed from the list on account of a delay in the selection of a biologic for negotiation.

How will the negotiated price be set?

• Calculation of a single price.  CMS intends to calculate a single MFP, calculated across all dosage forms and strengths of the selected drug and based on a 30-day equivalent supply, and then translate that price to the unit level.

• MFP ceiling.  The MFP must be capped at a specified percentage of non-FAMP or an amount reflecting an average market price.  For IPAY 2026, the MFP may not exceed the lower of:

  1. A specified percentage (discussed below) of average non-FAMP (discussed below) for 2021 (or, where there is no non-FAMP for 2021, the average non-FAMP for the first full year following market entry), increased by an inflation factor from September 2021 (or December of the first full year following market entry) to September of the year prior to the selected drug publication date, or

  2. The sum of the “plan specific enrollment weighted amounts” (discussed below). 

     • The specified percentage is determined by the length of time the drug has been on the market.

       • For long-monopoly drugs, for which at least 16 years have elapsed since approval or licensure (excluding vaccines), 40 percent.

       • For short-monopoly drugs, which encompasses all other drugs, 75 percent.

       • We note that, starting with IPAY 2030, a drug will qualify as an extended-monopoly drug where at least 12 years but less than 16 years have elapsed since approval or licensure (excluding vaccines).  The applicable percentage for such drugs will be 65 percent.

     • Average non-FAMP.  CMS indicates that it intends to base the “average” non-FAMP on the 4 quarterly non-FAMPs for calendar year 2021 (or, if there is no average Non-FAMP for calendar year 2021, for the first full calendar year following market entry).  Use of a calendar year would differ from the use of a federal fiscal year under the Veterans Health Care Act, which is the statute that created Non-FAMP. 

       • • CMS intends to require that the “Primary Manufacturer” report the non-FAMP data not just for its own NDCs but also for any NDCs of a “Secondary Manufacturer.”

         • CMS then would apply a multi-step process to take the 4 quarterly non-FAMP calculations for each NDC-11 of the drug and calculate a single weighted average price for a 30-day supply, across all the strengths and dosage forms of that drug. 

     • Plan specific enrollment weighted amounts.  CMS indicates that it intends to calculate the enrollment-weighted amount for each Part D prescription drug plan or Medicare Advantage prescription drug plan based on the Part D negotiated price of the selected drug under such plan net of price concessions received by such plan or its pharmacy benefit manager.

• Factors for consideration.  In negotiating the MFP, CMS is required to consider:

  • Certain manufacturer-specific information submitted by the manufacturer, including information regarding research and developments costs; production and distribution costs; federal financial support for discovery and development; pending and approved patents, FDA exclusivities, and FDA applications; and market, revenue, and sales volume data.  CMS proposes definitions of statutory terms and specific considerations it intends to weigh in evaluating each of these factors. 

  • Evidence regarding alternative treatments, including the extent to which the selected drug represents a therapeutic advancement; the costs of therapeutic alternatives; the comparative effectiveness of the selected drug and the therapeutic alternatives; and the extent to which the selected drug and the therapeutic alternatives address unmet medical needs.  CMS intends to accept evidence regarding alternative treatments from manufacturers and other stakeholders, and “review existing literature and real-world evidence, conduct internal analytics, and consult subject matter and clinical experts.”  In identifying the indications of the selected drug and its therapeutic alternatives for purposes of this analysis, CMS intends to consider off-label use if such use is included in nationally recognized, evidence-based guidelines and recognized by CMS-approved Part D compendia.

• Developing the initial offer.  CMS intends to use the Part D net price(s) and/or the Part B average sale price(s) of the therapeutic alternative(s) as the starting point for developing the initial offer, unless such price is higher than the MFP ceiling.  If there are no therapeutic alternatives or if such price is higher than the MFP ceiling, CMS intends to instead use the Federal Supply Schedule or Big Four Agency price, unless such price is higher than the MFP ceiling.  If such price is higher than the MFP ceiling, CMS intends to instead use the MFP ceiling.  This starting point would then be adjusted based on the clinical benefit of the selected drug compared to that of the therapeutic alternative(s), or, if there are no therapeutic alternatives, based on the extent to which the selected drug meets an unmet medical need.  CMS would adjust the resulting “preliminary price” based on manufacturer-specific information submitted by the manufacturer.

What is the timeline for negotiation?

• CMS will publish the list of drugs selected for IPAY 2026 by September 1, 2023.  CMS intends to post the list on the CMS IRA webpage.

• Manufacturers must enter into an agreement to negotiate by October 1, 2023.  CMS has not yet published the terms of that agreement and states that it will make reasonable efforts to make the manufacturer agreement available to the public before publishing the list of selected drugs.

  • Only Primary Manufacturers would enter into negotiation agreements with CMS.  Primary manufacturers are defined as “the entity that holds the NDA(s)/BLA(s) for the selected drug.”  Primary Manufacturers would have certain responsibilities with respect to Secondary Manufacturers, including obtaining specified information from them for submission and ensuring that they appropriately provide access to the MFP. 

  • A manufacturer is a “Secondary Manufacturer” if it is listed as a manufacturer in the NDA or BLA for the drug and markets the selected drug pursuant to an agreement with the Primary Manufacturer.  We refer to “Primary Manufacturers” as “manufacturers” throughout this alert, except as necessary to note a distinction.

• The manufacturer must submit specified information by October 2, 2023.

• CMS must make a written initial offer by February 1, 2024.  The initial offer must include a concise justification based on the factors that CMS is required to consider.

• The manufacturer must accept the offer or make a written counteroffer within 30 days.  If CMS rejects a counteroffer, it intends to hold between one to three meetings with the manufacturer within 30 days of receiving the counteroffer.  For IPAY 2026, these meetings would conclude by June 30, 2024.

• If a meeting is held, CMS intends to send the manufacturer a “Notification of Final Maximum Fair Price” before negotiation concludes.  For IPAY 2026, this notice would be sent by July 15, 2024, and the manufacturer would then provide a response, either accepting or rejecting the final offer, by July 31, 2024.

• Negotiation must conclude by August 1, 2024.

What will happen after the negotiated price is set?

• Publication of the MFP.  For IPAY 2026, the MFP will be published on the CMS website by September 1, 2024.  CMS will also publish an explanation for the MFP, which will focus at a high level on the factors that had the greatest influence on determining the MFP, without disclosing proprietary information. 

  • If an agreement is not reached for a selected drug, neither an MFP nor an explanation will be published, and CMS will instead indicate on its website that no agreed upon MFP has been reached.  (CMS also intends update its website when a drug no longer qualifies as a selected drug and the reason therefor.)

  • If a manufacturer does agree to the final offer by the negotiation deadline (in which case it will become subject to an excise tax, the assessment of which will be addressed by the IRS), but agrees to such offer belatedly, CMS will publish an MFP and an explanation 30 days after such agreement.

• Access to the MFP.  The manufacturer will be required to provide access to the MFP with respect to Medicare beneficiaries.  Under the guidance, CMS proposes to give manufacturers discretion to provide access to the MFP either as an up-front discount or as an after-the-fact rebate).  As proposed, each manufacturer:

  • Must submit to CMS at least 30 days before the start of the applicable IPAY the process by which the manufacturer will provide access to the MFP and

  • Must ensure that pharmacies are reimbursed for the difference between their acquisition costs and the MFP within 14 days.

Manufacturers and their contracted entities would not be permitted to charge any transaction fee for this process, and the manufacturer would be subject to record keeping requirements.

• Nonduplication of MFP and 340B ceiling price.  CMS acknowledges the statutory requirement that manufacturers need only offer the lesser of the MFP or the 340B ceiling price to 340B covered entities, not both.  CMS states that it intends to work with the Health Resources and Services Administration to ensure that the MFP is made available to 340B covered entities “where appropriate.” 

• New NDA or BLA with the same active moiety.  If the manufacturer receives approval of a new NDA or BLA, or a supplement to an existing NDA or BLA, for the same active moiety or active ingredient, respectively, as the selected drug, products marketed pursuant to such NDA or BLA or supplement must also be offered at or below the MFP during the price applicability period.

What happens if a generic or biosimilar launches?

• A selected drug generally will cease to be subject to the MFP at the start of the year that begins at least 9 months after a generic or biosimilar comes to market.  CMS notes that, where a generic or biosimilar comes to market between August 2, 2024, and March 31, 2026, a selected drug will be subject to the MFP until the start of 2027.  CMS intends to use Part D PDE data for the most recent 12-month period to determine whether a generic or biosimilar has come to market in a “bona fide” way, on a monthly basis.​​​​​​​

Other topics

• Confidentiality.  Among other things, CMS intends to prohibit manufacturers from disclosing to the public any information in offers from CMS, any justification from CMS, or the price contained in any offer.  Manufacturers may not use such information for any purpose other than the Drug Price Negotiation Program, and must destroy all information received from CMS during negotiations within 30 after the drug no longer qualifies as a selected drug.

• Monitoring for compliance.  CMS intends to monitor manufacturer compliance with the Drug Price Negotiation Program, including by monitoring the ability of pharmacies to access the MFP and by establishing a mechanism for beneficiaries and pharmacies to report on circumstances where they were unable to access the MFP.

• Enforcement.  The statute subjects manufacturers to significant CMPs for:

  • Failing to offer the MFP with respect to a Medicare beneficiary.  Such CMPs are to be ten times the amount of the number of units of a drug not properly subject to an MFP and the difference between the MFP and the price actually offered.  CMS intends to use the net price, not including service fees, to determine the price actually offered.

  • Violating the terms of the negotiation agreement, including the requirement to submit the requisite information to CMS.  Such CMPs are set at $1,000,000 for each day of a violation, and CMS will consider a manufacturer that knowingly submits false information under any of the requirements discussed above as having violated this provision.

  • Knowingly providing false information with respect to certain aggregation rules for the small biotech exception and the biosimilar delay provision.  Such CMPs are $100,000,000 for each item of false information.

• CMS states that it intends to provide notice to manufacturers of any CMP, and manufacturers would have 60 days from the date of receipt of such notice to request a hearing.  If a manufacturer does not request a hearing, the CMP would be due 60 days following the date of receipt of the notice.  

• Part D plan requirements.  Part D plans will be required to include negotiated drugs on their formularies.  The Part D negotiated price must be no greater than the MFP plus a dispensing fee.

• Application of the Part B and Part D inflation rebates to drugs subject to an MFP.  CMS states that the Part B and Part D inflation rebates apply to drugs subject to an MFP.  CMS is seeking comment on the interface between the Drug Price Negotiation Program and Part B and Part D inflation rebates, which interface will be addressed in future guidance.

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We will monitor this guidance, and any additional guidance CMS may issue with respect to the Drug Price Negotiation Program.  As always, it is important that you carefully review the guidance to identify all issues relevant to your organization.

Authored by Alice Valder Curran, Allison Pugsley, Beth Halpern, Beth Roberts, Joy Sturm, Ken Choe, Melissa Bianchi, Philip Katz, Stuart Langbein, James Huang, Kathleen Peterson, Samantha Marshall, Mahmud Brifkani, Abdie Santiago, Ashley Ifeadike, Katie Kramer, and Rianna Modi.