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Alerts and Updates

CMS Issues Initial Guidance on Medicare Drug Price Negotiation Program

March 29, 2023

CMS Issues Initial Guidance on Medicare Drug Price Negotiation Program

March 29, 2023

Read below

Drug companies have until October 1, 2023, to agree to participate in the program, and until October 2, 2023, to submit manufacturer-specific data.

On March 15, 2023, the Centers for Medicare and Medicaid Services (CMS) issued a 91-page guidance document outlining its plans for implementing the Drug Price Negotiation Program. The Inflation Reduction Act of 2022 required CMS to negotiate maximum fair prices for certain high-expenditure, single-source drugs and biological products. The guidance outlines the criteria CMS will use in selecting drugs and establishing maximum fair prices and how the program will unfold over the next few years. CMS requests comments on key features of the program by April 14, 2023.

The Drug Price Negotiation Program consists of CMS selecting eligible drugs from Medicare Part B and Part D, collecting information on those drugs, offering maximum fair prices for those drugs and initiating an offer-counteroffer negotiation process with drug companies to settle on final maximum prices for their drugs. The first round of negotiations will take place between 2023 and 2024, and the maximum prices established for those drugs will go into effect on January 1, 2026. For this first round, CMS will select 10 drugs from Medicare Part D. They must be high-expenditure, single-source drugs, meaning drugs for which there is no generic or biosimilar competition, and they must:

  • Be among the 50 drugs with the highest total spending over the past 12 months;
  • Have had market approval for at least seven years (for drugs) or 11 years (for biologics);
  • Not be listed as a reference drug for a generic or biosimilar product; and
  • Not be any of the following:
    • Orphan drugs that are approved to treat only one rare disease or condition;
    • Plasma-derived biological products; or
    • Drugs that account for less than $100 million in annual Medicare spending.

CMS will select these first 10 drugs by May 31, 2023, based on total Part D expenditure data, and will publish the list on September 1, 2023. Drug companies have until October 1, 2023, to agree to participate in the program, and until October 2, 2023, to submit manufacturer-specific data.

For those companies that agree to participate, CMS will gather data to determine the initial maximum fair prices for their drugs. The Inflation Reduction Act does not specify data sources, so CMS anticipates taking a broad approach. Such data will include the Part D net price and Part B average sales price for drugs that are therapeutic alternatives, the clinical benefits of the selected drug, whether the drug meets an unmet need and the drug’s impact on relevant populations. CMS will then adjust the price based on manufacturer-specific data, such as R&D costs, production costs, prior federal support, data on pending and approved patent applications and market data for sales in the United States.

By February 1, 2024, CMS will send initial offers of maximum fair prices. Drug companies will have until March 2, 2024, to accept CMS’ offer or propose a counteroffer. This negotiation period will end August 1, 2024. Drug companies are subject to civil penalties and excise taxes for failing to comply with negotiation requirements, such as furnishing required information during the negotiation process.

CMS will publish the negotiated maximum fair prices by September 1, 2024, and they will go into effect on January 1, 2026. While the guidance specifies the negotiation process only for the first round of negotiations, the Inflation Reduction Act specifies that CMS will continue this process for 15 additional Part D drugs for 2027, 15 additional Part B or Part D drugs for 2028 and 20 additional Part B or Part D drugs for 2029 and subsequent years.

As 2023-2024 will be the first year CMS has executed this program, the March 15 guidance requests comments on aspects of the Drug Price Negotiation Program, such as what terms to include in manufacturer agreements, how to consider manufacturer-reported data and alternative-treatment data, what content to include with an initial maximum fair price, how to establish a dispute-resolution process and how to ensure compliance and impose penalties for violations. Comments are due April 14.

Companies whose drugs are among those with the highest total spending should begin to evaluate their drugs now to see if they might be included in the program—and whether they want to participate. Further, since this guidance covers only the 2023-2024 negotiation period, CMS will need to issue further guidance as this program progresses. Companies must stay abreast of such new requirements as CMS issues them, and they should submit any comments by the April 14 deadline.

For More Information

If you have any questions about this Alert, please contact Frederick R. Ball, Patrick C. Gallagher, Ph.D., Taylor Hertzler, any of the attorneys in our Health Law Practice Group, any of the attorneys in our Life Sciences and Medical Technologies Industry Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.