The Inflation Reduction Act of 2022, signed into effect by President Biden in August 2022, includes various measures aimed at lowering prescription drug expenses for Medicare users and cutting down the federal government's spending on drugs. The Act mandates the Secretary of Health and Human Services (HHS) to engage in price negotiations with pharmaceutical companies for specific drugs covered by Medicare Part D (commencing in 2026) and Part B (commencing in 2028). This requirement marks the culmination of prolonged legislative deliberations regarding whether the government should possess the authority to negotiate drug prices within Medicare. This development coincides with ongoing legal actions attempting to impede this initiative, while the Centers for Medicare & Medicaid Services (CMS) plans to announce the roster of 10 Part D drugs subject to negotiation by September 1, 2023. Recently issued revised guidance by CMS outlines the implementation strategy for the new Medicare Drug Price Negotiation Program, which will come into effect in 2026 to introduce negotiated drug prices.
Drugs eligible for price negotiation in 2026 within Medicare Part D must be single source brand-name drugs or biological products without equivalent generics or biosimilars. They must also have been approved or licensed and marketed for at least 7 years (for small-molecule drugs) or 11 years (for biologics) by the time the negotiation list is published. However, certain drugs are excluded: those designated for a single rare disease, drugs with combined Part D and Part B spending under $200 million, and plasma-derived products. An exception is made for "small biotech" drugs from 2026 to 2028. CMS clarified that a drug designated for multiple rare diseases won't qualify for the exclusion, and only active designations and approvals are considered for exclusion determination.
In 2026, the Medicare Part D program will choose the ten drugs it will negotiate from the top fifty eligible drugs with the highest total expenditures (under Part D), which are calculated from the gross covered prescription drug costs. Gross covered prescription drug costs are the total expenses related to prescription medications for someone who is enrolled in a prescription drug plan or a Medicare Advantage plan with prescription drug coverage during a year.
When engaging in negotiations for the "maximum fair price" of selected drugs, the Centers for Medicare & Medicaid Services (CMS) will take into account a range of factors as mandated by the Inflation Reduction Act. These factors encompass manufacturer-specific details and information pertaining to therapeutic alternatives. Regarding the manufacturer-specific factors, CMS will consider elements such as the manufacturer's research and development costs and the degree to which these costs have been recovered. Additionally, the current unit costs of production and distribution, federal financial support allocated for novel therapeutic discovery and development linked to the drug, and revenue and sales volume data within the United States will be assessed. Regarding therapeutic alternatives, CMS will assess the selected drug's therapeutic advancement compared to existing alternatives and the costs involved. This involves reviewing prescribing information for the chosen drug and its alternatives, considering generics or biosimilars. Additionally, the CMS will analyze the effectiveness of the selected drug and alternatives for specific patient populations, such as the elderly, disabled individuals, terminally ill patients, and children. The extent to which the selected drug and alternatives address unmet medical needs will also be considered. These evaluations aim to ensure a comprehensive understanding of the clinical benefits and value offered by the chosen drug and its alternatives.
Sources:
Cubanski, Juliette, et al. “Explaining the Prescription Drug Provisions in the Inflation Reduction Act.” KFF, 22 Sept. 2022, www.kff.org