Pharmacies and pharmaceutical companies are nervous about the introduction of drug price reductions in the USA

Major drug manufacturers and pharmacy groups are currently considering how they will implement the first Medicare negotiated drug prices due to concerns about reimbursement practices and the influence of pharmacy benefit managers on how prices reach beneficiaries.

The Biden administration reached a milestone in its Medicare Drug Price Negotiation Program this month when it released negotiated prices of 10 prescription drugs after months of talks between manufacturers and the Medicare agency. The negotiations resulted from the administration's efforts to lower drug costs under President Joe BidenThe Inflation Reduction Act is the company's most important tool.

The negotiated prices, referred to in the law as maximum fair prices, do not take effect until January 1, 2026, giving the Centers for Medicare & Medicaid Services, nine drug manufacturers and thousands of pharmacies less than a year and a half to smooth out the implementation of the prices.

CMS is expected to finalize its guidelines in the fall, but drug manufacturers and pharmacies are already considering implementation approaches that could add complexity to the pharmaceutical supply chain due to new payment models and reimbursement practices.

“Multiple stakeholders – the pharmaceutical industry, pharmacies, the government – ​​are all working together here,” said Joey Mattingly, associate professor and vice chair of research at the University of Utah’s College of Pharmacy.

“It feels like people are trying to proactively get it right,” said Mattingly, who served as a special adviser to the CMS in implementing the negotiating program.

In a statement to Bloomberg Law, CMS said it held three hearings in May for manufacturers, pharmacies, dispensaries, wholesalers and other Medicare Part D-related organizations to seek input on implementing the negotiated price.

Make the price available

The Inflation Control Act requires companies to ensure that the negotiated price is made available to eligible persons as well as to pharmacies, mail-order companies and other establishments that dispense the medicines.

However, the law prescribes different procurement and reimbursement practices for pharmacies than those commonly used today.

The traditional process for the flow of prescription drugs through the supply chain begins with the manufacturer producing the drug and setting the price for it. The drug is then sold to a wholesaler at a set price, which is discounted based on factors such as the size of the purchase. The wholesaler then distributes the drug to pharmacies and other dispensaries at a higher price, passing on some of the discount.

Pharmacy benefit managers act as intermediaries between drug manufacturers, insurers and pharmacies. They come into play when negotiating drug prices with manufacturers and determining which drugs will be covered by a patient's insurance. Ideally, PBMs use their purchasing power to negotiate prices and discounts that can be passed on to the patient.

Pharmacies are the last step in the supply chain before a drug reaches the patient, after purchasing drugs from the wholesaler. They contract with PBMs to include the drug in their pharmacy network and dispense the drug to a patient under a health insurance plan. Pharmacies generate revenue through patient cost-sharing and PBM reimbursements.

The IRA “fundamentally changes that equation,” Mattingly said. “Because the way it's written, it says pharmacies have to have the highest possible fair price at the pharmacy level. But that's not how we buy drugs.”

By law, manufacturers must pass the negotiated price on to the pharmacy either in the form of an upfront rebate or as a reimbursement. CMS has proposed using a Medicare Transaction Facilitator to confirm transactions.

Therefore, beginning in 2026, pharmacies will be allowed to continue to purchase the drugs from wholesalers, but will be allowed to dispense them to eligible individuals at no more than the negotiated price. A PBM would then reimburse the pharmacy on behalf of a Part D plan.

Because the pharmacy purchased the drug from a wholesaler — likely in bulk to serve all patients, including those with Part D — the CMS's draft policy requires the manufacturer to reimburse the pharmacy the difference between the amount it paid the wholesaler for the drug and the negotiated price within 14 days to make up the remaining balance.

To offer the negotiated price, manufacturers must meet several requirements, such as maintaining a 14-day MFP payment window, recording and documenting claims, and avoiding duplicate discounts that may occur between the negotiated price and the federal 340B drug pricing program.

If a dispensing point's price is not available or the report containing payment-related data is not submitted to the intermediary within the time frame, drug manufacturers may be subject to civil fines.

Unintended consequences

While the program is intended to reduce costs for patients with Part D prescriptions and government spending, some pharmaceutical industry experts say its implementation could have unintended consequences for dispensing sites.

“Manufacturers now have to pay pharmacies under this process,” Mattingly said. “However, if the maximum fair price is significantly below wholesale prices – the price at which the pharmacy purchased the drug – there will come a time when pharmacies are essentially paying more for the drug and receiving less from insurance.”

“The purpose of the law was to lower drug prices for our seniors and for Medicare,” he said. “The law was never meant to hurt any of the supply chain companies, such as pharmacies, so we need to do our best to make sure that we don't inadvertently hurt pharmacies by implementing it.”

The implementation plans are already causing concern for the National Community Pharmacists Association, an industry association representing over 19,000 independent pharmacies.

“We cannot make this program happen, and we don't believe it was anyone's intention to require pharmacies to pre-fund the Medicare drug negotiation program,” said Ronna Hauser, NCPA's senior vice president for policy and pharmacy affairs. “In order for this to work, solutions need to be implemented very quickly.”

In addition, pharmacies may have to wait more than 30 days for reimbursement from the manufacturer, which could affect payment and dispensing of medications, Hauser said.

Role of PBMs

Pharmacies also raised concerns about the role of PBMs and their impact on negotiated prices.

The middlemen continue to face criticism for a lack of transparency and excessive costs to health plans, but they insist their job is to get discounts to patients. PBMs say manufacturers' list prices and patent practices that limit competition lead to high drug prices.

“Our assessment is that we will purchase the drug from our wholesalers at the same price as today, but we have no guarantee that we will receive MFP plus a dispensing fee from the PBM,” Hauser said. “CMS has not yet commented on how PBMs will reimburse pharmacies for MFP drugs.”

The American Pharmacists Association, a group of more than 62,000 practicing pharmacists, said CMS “must issue a policy ensuring that Part D plans and PBMs cannot pay pharmacies less than this MFP.”

The manufacturers also point to PBMs and say that because of the middlemen, it is unclear whether the negotiated prices benefit the patients.

“Pharmacy Benefit Managers remain uncontrolled by this process and can further increase patients’ out-of-pocket costs,” AstraZeneca PLC said in a statement. “AstraZeneca is asking CMS to protect patient out-of-pocket costs as part of this process.”

Bristol-Myers Squibb Co. calls on insurers and their pharmacy benefit managers to “continue to make ELIQUIS available to patients without increasing out-of-pocket costs or creating other barriers to access to this medicine.”

“PBMs are one institution where we demand transparency, and implementing the requirements with the negotiated 2026 price list is an example of that demand,” said Earl Ettienne, associate dean for graduate programs and industry partnerships at Howard University.

“But if we don't have transparency, we're going to have problems,” said Ettienne, who is also an associate professor of clinical and administrative pharmacy sciences. “Pharmacies are at the forefront of the distribution channel, and the ongoing legislative discussions around PBM reform couldn't be more timely.”