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March 17, 2023

How drug pricing provisions will work under the IRA

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    The Biden administration this week began outlining how it will implement certain drug pricing provisions of the Inflation Reduction Act (IRA), including a new process for prescription drug pricing negotiations and manufacturer rebates for certain drugs covered by Medicare.

    CMS outlines new drug price negotiation process

    Under the IRA, which was signed into law last August, Medicare will be able to negotiate certain prescription drug prices with pharmaceutical companies. This provision will initially apply to 10 drugs starting in 2026 and expand to 20 drugs in 2029.

    On Wednesday, CMS released new guidance explaining a multi-step negotiation process for certain Medicare drugs beginning next year. According to the guidance, CMS will first choose 50 prescription drugs that cost Medicare the most money, based on their gross expenditures. If two drugs cost the program the same amount, the one that has been approved for a longer time will be ranked higher.

    From this list, CMS will select the top 10 drugs that will be subject to pricing negotiations. According to STAT+, officials will identify drugs in the same therapeutic class, if possible, and consider their net prices when making an initial offer to drugmakers. CMS will also evaluate a drug's clinical benefit, whether it meets an unmet medical need, and its impact on "specific populations."

    "By considering factors such as clinical benefit and unmet medical need, drug price negotiation intends to increase access to innovative treatments for people with Medicare," said CMS Administrator Chiquita Brooks-LaSure.

    In the guidance, CMS said it plans to accept one counteroffer from a manufacturer and will hold between one and three in-person meetings with a company before settling on a "final maximum fair price offer." Any data submitted from companies during negotiations will be confidential and not subject to public records requests.

    The first 10 drugs up for negotiation are expected to be announced by Sept. 1, and negotiations will run through Aug. 1, 2024. Any negotiated prices would go into effect in 2026. Companies that don't comply with the negotiated prices will be subject to an excise tax.

    Medicare selects its first list of drugs for IRA rebates

    The IRA also includes a provision that requires drug companies to pay rebates to Medicare when the prices of certain drugs covered under the program increase faster than the rate of inflation.

    CMS on Wednesday named the first 27 drugs that will included in the IRA rebate program. These drugs include the rheumatoid arthritis treatment Humira, the CAR-T cell lymphoma therapy Yescarta, the blood thinner Fragmin, and more.

    Beginning on April 1, Medicare will also reduce the coinsurance amount for these 27 drugs, going from 20% to between 10% and 19.9%. According to health officials, certain Medicare beneficiaries could see their out-of-pocket costs for these drugs decrease by $2 to $390 per average dose.

    The rebate program "is a critical way to address long-term price increases by drug companies while improving access and affordability for the millions of people with Medicare coverage," Brooks-LaSure said.

    CMS will begin invoicing drugmakers for these rebates in 2025. Companies that do not pay the rebates could potentially face a penalty up to 125% of the rebate amount.

    "The Medicare prescription drug inflation rebate program is strengthening Medicare by making prescription drugs affordable for millions of people and discouraging drug companies from increasing prices faster than inflation," Brooks-LaSure said. "It's also protecting Medicare for our children and grandchildren." (Bettelheim, Axios, 3/16; Cohrs, STAT+ [subscription required], 3/15; Armour/Hopkins, Wall Street Journal, 3/15; AHA News, 3/15; Choi, The Hill, 3/15; Morse, Healthcare Finance, 3/15; CMS guidance, accessed 3/16)

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