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Filling in the Blanks on the IRA: The First 10 Drugs Inform the Next Round

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A CMS official discusses a draft guidance on the second round of drug pricing negotiations amid uncertainties over the first round of talks under the Inflation Reduction Act (IRA).

Round 1 of Medicare drug price negotiations under the Inflation Reduction Act (IRA) are not complete, but CMS on Friday sent word to drug manufacturers and other stakeholders: We’ve already learned plenty, and we want to learn more.

That was the message Monday from Kristi Martin, MPA, senior adviser at Medicare, CMS, who appeared at a panel discussion, “Medicare Drug Price Negotiation: Lessons From the First 10 Drugs Selected,” which packed the room at ISPOR—The Professional Society for Health Economics and Outcomes Research meeting in Atlanta, Georgia.

The panel was moderated by Sean Sullivan, BScPharm, PhD, professor, The CHOICE Institute School of Pharmacy at the University of Washington; Inmaculada Hernandez, PharmD, PhD, professor at the University of California San Diego, presented highlights from unpublished findings of a project that simulated CMS’ price negotiation process.

Sullivan started the session with questions that have bedeviled both drug companies and experts who analyze the relative value of therapies, as they have wondered from afar how CMS will interpret a brand-new law.

Kristi Martin, MPA | Image credit: CMS

Kristi Martin, MPA | Image Credit: CMS

Martin then shared highlights from a new CMS draft guidance issued ahead of the second round of the IRA, as Medicare prepares to select up to 15 more drugs for price negotiations on February 1, 2025. Price negotiations for the first 10 drugs are ongoing, with Maximum Fair Prices (MFPs) to be announced September 1, 2024, and take effect January 1, 2026.

Sullivan said in his view, CMS “strictly followed the statutory provisions given to them” in selecting the first 10 drugs, basing choices on Part D gross covered prescription drugs, not net expenditures. Some drugs were left off the list that might have offered more savings—but picking them would not have followed the law, he explained.

He shared tales of manufacturers hunting for documentation in basements, but explained those are the reporting requirements in the law. Now the period of negotiation is under way, which will involve “an assessment of net clinical benefit compared with therapeutic alternatives—what we affectionately call comparative effectiveness research.”

This analysis will include how well a therapy contributes to “productivity and independence, function, and quality of life, and whether the selected drug meets an unmet medical need—and the use of that drug in the specific population, which of course, is Medicare,” Finally, Sullivan said, costs and outcomes are considered, “so long as [quality-adjusted life years] aren't part of the evidence package.”

A big question mark has been what CMS will do for drugs that have multiple indications and, thus, multiple potential therapeutic alternatives, depending on the indication. Sullivan used empagliflozin (Jardiance; Boehringer Ingelheim/Lilly) as an example. First approved to treat patients with type 2 diabetes, the sodium-glucose cotransporter-2 (SGLT2) inhibitor was later approved to reduce the risk of cardiovascular death in these patients, as well as those with heart failure regardless of diabetes status and most patients at risk of decline of renal function.

“The number of therapeutic alternatives can become extraordinarily complex, making this a really challenging exercise for CMS,” he said.

As stakeholders wait for the first MFPs to be published, “We know from the law there is a statutory ceiling, but is there a floor? If there is one, there is nothing in the law,” Sullivan said. Negotiations are based on 2022 prices, but implementation comes in 2026.

“The challenging part is if there's a single MFP but you've got products with multiple indications,” Sullivan said, suggesting a hypothetical drug with 3 indications—with different relative values to its competitors. “So, how do we arrive at an MFP that might reflect the value of these 3 indications? These are things we all want to know.”

Lessons From the First Round

“What is our experience to date?” Martin asked as she opened her remarks, which focused on the draft guidance that seeks to clarify some of the questions Sullivan raised, as well as others.

She emphasized that CMS must stay within the framework outlined by Congress; there are some areas that will remain consistent, such as the methodology for drug selection. “But there were a number of places where we felt like we needed to make some adjustments,” Martin said.

New items are spelled out in a fact sheet on CMS’ website which covers:

  • Approaches for considering evidence about alternative treatments when develop an initial offer for drug companies
  • Approaches for considering manufacturer-reported data elements
  • Ways in which CMS will receive patient-focused information on drugs that are selected, which will be considered in Medicare’s initial offer
  • Formats and processes for exchanging offers and counteroffers between CMS and companies
  • Parameters for sharing data among drug companies, pharmacies, and the Medicare Transaction Facilitator (MTF), including claims-level data
  • Requirements drug companies must meet in making the MFP available to eligible beneficiaries and their pharmacies

Martin noted that the comment period on the draft guidance ends July 2, 2024; there may be more adjustments based on feedback and what CMS learns in the final stages of the first round of price negotiations.

Of note, Martin said it was important to clarify that Medicare coverage gap discount programs will be considered, as well as cases in which a therapeutic alternative or selected drug was negotiated in the first cycle of the IRA.

CMS wants to hear from those affected by the IRA and the draft guidance reflects this, she said. Medicare officials weighed how the previous patient listening sessions went, and asked, “How can we get more engagement, dialogue and more robust information from those?” Martin said. The agency is open to format changes, “and we can improve our data collection as well.”

Specifically, Martin said CMS would welcome examples of collecting information from payers. “We are weighing how the event can have some level of discussion and engagement among the speakers, in which CMS can also be better positioned to ask questions and really engage.”

Finally, Martin said CMS is giving much thought to the role of the MTF who will be responsible for ensuring that beneficiaries receive retroactive payment adjustments if they are incorrectly charged more than the MFP.

Replicating Medicare’s Effort Externally

Hernandez has taken on a huge challenge. Funded by the Commonwealth Fund, she and her collaborators are externally replicating the first cycle of Medicare drug price negotiations.

“The objectives are to improve transparency, in the sense that we're going to be able to publish the results we're doing and display how we are getting at the prices, to assess the data sources that one may use to capture clinical benefit, to estimate savings associated with a negotiation, and also to describe challenges and lessons learned,” she said.

Using what she described as a simplified graphic of the process, Hernandez said CMS must first decide whether a drug selected for negotiation has therapeutic alternatives. If the drug lacks alternatives, the starting point under the statute will be to lower the ceiling price to what the “Big Four” agencies pay (Department of Defense, Veterans Affairs, Coast Guard, and Public Health Service); the final negotiated price cannot exceed this amount. A minimum discount will be set next, based on a drug’s length of time on the market.

“We call these minimum statutory discounts,” she said. The discounts are 25% for drugs on the market 9 to 16 years and 60% for drugs on the market more than 16 years.

Hernandez had previously published a paper on the first phase of the project, regarding the challenges of selecting therapeutic alternatives for Medicare price negotiations.1 “What I'm going to be talking today about is how we are thinking of looking at price benchmarks for the drugs selected for negotiation and develop alternatives,” she said.

A third ongoing project involves “an integration of our net pricing data with data from clinical benefit, trying to derive our own negotiated prices.”

She outlined a process that would feature price benchmarks for drugs selected for negotiation, therapeutic alternatives, list prices, and net prices—factoring out rebates using an algorithm developed by her research team. Statutorily defined prices are those paid by the Big Four agencies. Hernandez characterized drugs based on scenarios, such as whether or not they had therapeutic alternatives, and she went through several examples. In multiple cases, she noted “the minimum statutory discounts are going to make a huge difference.”

In other cases, the presence of multiple therapeutic alternatives will be of greater consequence. Hernandez said the process is not simple. It does make a difference if the closest therapeutic alternative is also being negotiated, which is the case with some of the drugs among first 10 on the list (among SGLT2 inhibitors, for example, 2 competitors are on the list, while remaining drugs in the class are not on the list).

Hernandez sees 3 sources of savings associated with the negotiations: direct application of the minimum statutory standards, CMS’ ability to handle negotiation of pricing below the ceiling, and the third “may be generated from indexing prices in 2026 to prices that were set in 2022,” which she said is not possible to estimate. She raised concerns about creating disadvantages when CMS is negotiating on the price of one drug in a class while others are not being negotiated; perhaps Congress should consider negotiating drugs together in a class, not individual therapies.

In response to a question, Martin said the issue of addressing multiple drugs in a class is something CMS is learning about through the process. “We’re going through it together.”

Reference

Hernandez I, Cousin EM, Wouters OJ, Gabriel N, Cameron T, Sullivan SD. Medicare drug price negotiation: The complexities of selecting therapeutic alternatives for estimating comparative effectiveness. J Manag Care Spec Pharm. 2024;30(3):218-225. doi:10.18553/jmcp.2023.23277.

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