Cracking the Medicare Drug Price Negotiation Code

Newswise – Lawrenceville, NJ, USA– October 1, 2024 – ISPOR – The Professional Society for Health Economics and Outcomes Research today announced the release of a study that provides estimates of how the Centers for Medicare & Medicaid Services (CMS) determined initial price offers for the first 10 drugs could be selected for Medicare price negotiations. An early version of the study was published online the same day the CMS announced it had reached agreements for lower drug prices. The article, “Integrating Price Benchmarks and Comparative Clinical Effectiveness to Inform the Medicare Drug Price Negotiation Program,” was officially published in the October 2024 issue value in health.

The Inflation Reduction Act (IRA) of 2022 introduced a groundbreaking provision that allows Medicare, for the first time in its history, to negotiate prices for select, high-cost prescription drugs. In 2023, CMS began negotiations with manufacturers of the first 10 drugs selected for price negotiations. The negotiation process, as described in the IRA and detailed in published CMS guidance, involves several steps. It starts with CMS presenting one first price offer to each drug manufacturer, followed by two rounds of negotiations. For the first 10 brands, CMS announced the final negotiated prices, known as Maximum Fair Prices (MFPs), on August 15, 2024. These renegotiated prices will take effect in 2026.

Although the CMS guidance clearly identifies the factors to be used in developing initial price offers, there is uncertainty about how these parameters influenced these offers. The analysis announced today by ISPOR highlights the complexity in interpreting CMS guidance and demonstrates the authors' ability to develop and follow a standardized process to derive initial price offers based on information provided by CMS.

“Our analysis sheds light on key price benchmarks and clinical evidence factors for determining initial price offers,” said author Sean D. Sullivan, PhD, Professor, The CHOICE Institute, School of Pharmacy, University of Washington, Seattle, Washington, USA. “Although we were unable to simulate the offer and counteroffer process, our results provide a transparent and systematic way to estimate initial price offers that are consistent with CMS guidelines.”

To make their estimates, the authors used estimates of net prices and other pricing benchmarks for the 10 drugs and their therapeutic alternatives, sought and integrated comparative clinical effectiveness data for the primary indications, and outlined a set of plausible first-price offerings based on CMS guidance and their own interpretation the regulatory intention of the authors.

The study results suggest that statutory maximum prices for ibrutinib and ustekinumab determined the initial price offers. Integration of net pricing and clinical insights from comparator brand products should have been incorporated into the initial pricing quotes for apixaban, empagliflozin, etanercept and insulin aspart. Rivaroxaban and sacubitril/valsartan have therapeutic alternatives that are generics, so CMS may have provided a discount to current net prices. To achieve savings in the dapagliflozin and sitagliptin negotiations, CMS would have had to use additional negotiating factors because statutory caps and net prices for therapeutic alternatives are similar or higher.

The researchers caution that their analysis should be interpreted as an attempt to inform the drug policy community about CMS first-price offers in the face of contextual scenarios, rather than a prescriptive report on the process that CMS should follow in deriving first-price offers. This is a crucial nuance in interpreting the results, which identified major sources of uncertainty in interpreting the guidelines as well as significant difficulties in attempting to reproduce the MFPs.

“CMS is not required to disclose detailed information about how they arrived at the initial price offers. They must release an explanation of how they arrived at the MFPs, but not until later in 2025,” Sullivan explained. “We believe our analysis can help improve transparency in the negotiation process and shed light on what evidence could make the greatest contribution to negotiated prices.”

The number of drugs subject to price negotiations will increase in the coming years. Specifically, CMS will negotiate prices for 15 Medicare Part D drugs in 2027, an additional 15 drugs covered by Medicare Part D or Part B in 2028, and an additional 20 in 2029 and subsequent years Drugs covered by Part D or Part B. Future research should therefore build on the work done in this study to promote transparency in the CMS process and generate lessons learned.

The authors, along with industry panelists, will participate in a webinar entitled “IRA Part III: Medicare's Maximum Fair Prices for the First 10 Negotiated Drugs and Anticipated Cost Savings” hosted by ISPOR on October 22, 2024 from 10:00 a.m. to will be held at 5:00 p.m. 11:00 a.m. ET.

Cracking the Medicare Drug Price Negotiation Code

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Cracking the Medicare Drug Price Negotiation Code

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