Overheard at ISPOR: IRA Drug Price Negotiations

The 2022 Inflation Reduction Act, which aims to contain Medicare spending and improve affordability of drugs costs, was a hot topic at the recent ISPOR (International Society for Pharmacoeconomics and Outcomes Research, Inc) conference in Boston.

Legislative changes to Medicare incorporate some of the most sweeping changes in recent years, along four main themes:

Part D improvements

Drug price negotiation

Inflation rebates

Part B changes

This blog post will focus on the Drug Price Negotiation tenet.

As detailed in the Inflation Reduction Act, Medicare will be able to negotiate directly with drug manufacturers to lower the price of some of the costliest single-source brand-name Medicare Part B and Part D drugs. The goal is for elderly people with Medicare to have increased access to innovative, life-saving treatments. The costs of these drugs will be lower for both consumers and the federal government.
A key feature of the law signed by President Biden in August 2022 will be to mandate a price discount or negotiation in price for selected therapies that have been on the market at least seven years (small molecules) to 11 years (biologics) as of the date that the list of drugs selected for negotiation is published. CMS intends to determine a single price for a 30-day equivalent supply of the selected drug, rather than per unit — tablet, capsule, injection—or per volume or weight metric. This will help establish procedures to compute and apply the price across dosage forms and strengths.

Drugs that are excluded from the process

• Therapies with less than $200M in annual Medicare Part B and D spending, referred to as “Low-Spend Medicare Drug Exclusion”
• Therapies with biosimilar or generics available
  • In addition, a biosimilar biologic manufacturer who is in the process of obtaining a license can request a delay in the inclusion of a negotiation-eligible drug that includes the reference product for the Biosimilar. The initial request for delay can be for one year, and a further extension can be granted for a second year of delay. Additional delay requests will be covered in future guidance.
• Therapies with only a single orphan indication, known as “Orphan Drug Exclusion”. According to the Act, “CMS will exclude a drug or biological product that is designated as a drug for only one rare disease or condition under section 526 of the FD&C Act and that is approved for only an indication (or indications) for such disease or condition.”
• “Plasma-Derived Product Exclusion"
• Small biotech drugs for the initial years of 2026-2028, known as the “Exception for Small Biotech Drugs”
  • “To identify and exclude such small biotech drugs, CMS will consider whether, for dates of services in calendar year 2021, the total expenditures under Part D for the qualifying single source drug (1) were equal to or less than one percent of the total expenditures under Part D for all covered Part D drugs, and (2) were equal to at least 80 percent of the total expenditures under Part D for all covered Part D drugs for which the manufacturer of the drug had a Coverage Gap Discount Program agreement in effect during 2021.”

Predicted impacts

The law will affect the profitability of large pharma companies that earn significant revenue from Medicare. This could impact future R&D and investments towards diseases affecting younger or non-Medicare populations. In addition, manufacturers and investors may prioritize exempt categories of drugs, for instance plasma-based therapies, as well as biologics over small molecules. Going forward, manufacturers may also prioritize larger indications for initial launches to maximize revenue opportunity in the first seven to 11 years, rather than launching in niche indications with the benefit of ex-U.S. price optimization. Most importantly, and mentioned by several panelists at this year’s ISPOR, consumers can expect initial launch price inflation to counterbalance some of the down-the-line price reductions.

The road ahead: 2026 and beyond

For a single-source drug to be eligible for negotiation in 2026, a drug product must have been approved on or before Sept. 1, 2016, and a biological product must have been licensed on or before Sept. 1, 2012. For the first year of the Negotiation Program, CMS will select up to 10 Part D high expenditure drugs, by leveraging Part D Prescription Drug Event data combined with Part B claims data from June 1, 2022 - May 31, 2023.
By Sept. 1, 2023, CMS will publish the list of up to 10 Medicare Part D drugs selected for negotiation in 2026. Following this announcement, a negotiation period will ensue with a finalized deal by Aug. 1, 2024, and a published list of negotiated maximum fair prices for drugs selected for negotiation for 2026. Maximum fair prices will be effective Jan. 1, 2026.
CMS will select up to an additional 15 Part D drugs for negotiation for 2027, up to an additional 15 Part B or Part D drugs for 2028, and up to an additional 20 Part B or Part D drugs for 2029 and subsequent years.

The negotiation process

In this year’s ISPOR, panelists agreed it remains to be seen how CMS will operationalize the negotiation process, which is capped at three negotiation sessions.

Within the draft guidance, CMS uses vague language on determining price reductions but mentions “therapeutic advance,” “comparative effectiveness” and “unmet need.”

“Therapeutic advance” is defined as “the extent to which the selected drug represents a therapeutic advance compared to existing therapeutic alternatives for the selected drug and the costs of such existing therapeutic alternatives.” “Comparative effectiveness” is defined as the “effectiveness of the selected drug and its therapeutic alternatives, including the effects of the selected drug and its therapeutic alternatives on specific populations (including individuals with disabilities, the elderly, the terminally ill, children, and other patient populations.” Finally, “unmet need” is referenced as “the extent to which the selected drug and the therapeutic alternatives to the drug address unmet medical needs for a condition for which treatment or diagnosis is not addressed adequately by available therapy.”

Information submitted or other information found by CMS that treats extending the life of individuals in these populations as of lower value, for example certain uses of quality-adjusted life-years (QALYs), will not be used in the negotiation process. ISPOR panelists mentioned the United States’ history of distaste for anything that approaches “rationing” and concluded that the direction CMS is taking in no ways will lead to creating a new federal HTA agency.

Source: CMS