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Eyes On Pharma Blog 

Eyes On - The IRA Drug Price Negotiations

How does the Inflation Reduction Act affect Drug Pricing?

The Inflation Reduction Act of 2022 made changes to Medicare to provide financial relief to patients and improve access to affordable treatments. With this expansion of benefits and lowering of drug costs, the government aims to improve the sustainability of the Medicare program for the future and to cap the annual out-of-pocket costs for participants to $2000 per year.

The law gives Medicare the ability to directly negotiate the prices of certain drugs. Currently, Medicare drug prices are negotiated by the more than 800 Part D plans that Medicare patients can choose from. The ability of Medicare to negotiate for all the members is supposed to enhance the ability to get to a Maximum Fair Price (MFP) for all Medicare participants.

What is the Process?

CMS (Centers for Medicare & Medicaid Services) is managing the process and has stated that its goal is to promote transparency and engagement in the process – for both drug companies and patients/the public.

  • Companies and members of the public will need to submit information to CMS on any of the 10 drugs selected for the first round by 2 Oct 23.

  • Each company will meet with CMS to discuss the data, and there will also be “listening sessions” for patients and other interested parties (e.g. patient advocacy groups) to participate and share their input on factors such as therapeutic alternatives, how a particular product addresses unmet needs, and the impact the drug has on their patient population. Patients and interested parties can submit data for consideration here.

  • CMS will send an initial offer for each drug MFP along with a justification by 1 Feb 24. The CMS will use data /evidence of therapeutic substitutions, as well as R&D, production, and distribution costs as part of their pricing offer.

  • Companies have 30 days to respond to the initial pricing offer. They can accept the offer or provide a counter-offer.

  • There are provisions for up to 3 additional rounds of negotiation before the period ends on 1 Aug 24.

See the CMS Fact Sheet and Pricing Negotiation Guidance for more details.

Which Drugs are included in this first round?

The drugs selected for the first negotiations accounted for 20%, or $ 50.5 billion, of Medicare Part D GROSS covered prescription drug costs from 1 June 2022 to 31 May 2023. And $3.4 Billion in out-of-pocket costs for the patients.

The named drugs are for preventing or treating common conditions – heart disease, diabetes arthritis/autoimmune diseases, and some cancers.

  • BMS’ Eliquis (apixaban) for the prevention and treatment of blood clots

  • Eli Lilly’s Jardiance (empagliflozin) for heart failure and diabetes

  • J&J’s Xarelto (rivaroxaban) for blood clots and for reducing stroke risk

  • Merck’s Januvia (sitagliptin) for diabetes

  • AstraZeneca’s Farxiga (dapagliflozin) for heart failure, diabetes, chronic kidney disease

  • Novartis’ Entresto (sacubitril/valsartan) for heart failure

  • Amgen’s Enbrel (etanercept) for psoriasis, rheumatoid arthritis and psoriatic arthritis

  • J&J’s Imbruvica (ibrutinib) for blood cancers

  • J&J’s Stelara (ustekinumab) for psoriasis and psoriatic arthritis, Crohn’s disease and ulcerative colitis

  • Novo Nordisk’s Fiasp and NovoLog, insulin products for diabetes

Note: CMS excluded certain orphan drugs and products coming from small biotech companies.

What is Pharma Saying?

Major Pharma and trade bodies such as PhRMA have challenged the program, with Merck, BMS, J&J, BI, AZN, and Astellas filing lawsuits to block the program. Some of their litigation is around the constitutionality of the program as well as the potential effects on innovation and fewer innovative drugs in the future.

BioSpace received statements from several firms below:

J&J in an emailed statement to BioSpace said the IRA’s price control provisions “will constrain medical innovation, limit patient access and choice, and negatively impact overall quality of care,” adding that “seniors could face bureaucratic barriers to access and potentially higher out of pocket costs even with the IRA’s out-of-pocket cost limits for Part D drugs.”

While Novo Nordisk in a statement said it “supports policies to ensure patients can afford their medicines,” the company has “seen CMS take aggressive steps to carry out unilateral price setting without consideration for the impact on patients living with chronic disease or the overall healthcare system.”

In an emailed statement to BioSpace, Merck said that these “price-setting provisions are bad policy that will stifle the U.S. biopharmaceutical sector’s research and development and have potentially devastating consequences for the millions of patients who need new therapeutic options.”

Additionally, Fierce Pharma reports PhRMA as stating:

Stephen Ubl, CEO of the trade group Pharmaceutical Researchers and Manufacturers of America (PhRMA), called the list “the result of a rushed process focused on short-term political gain rather than what is best for patients.”

Many rebates and discounts already exist for the selected drugs, Ubl said in a statement. He said the existing system includes “robust private market negotiation" for the Part D program.

And BMS:

That sentiment was echoed by Catherine Owen, senior vice president and general manager of U.S. commercial at Bristol Myers Squibb, who said patients already have access to Eliquis with a “relatively low out-of-pocket expense.”

“What’s really important in terms of the facts is that seniors on average pay about $55 per month for Eliquis and over half of all Eliquis patients—whether they’re commercial or Medicare—pay $45 or less,” she said in an interview.

Regarding the litigation, Healthcare Finance News shared the following [more detailed] statement from PhRMA:

The Pharmaceutical Research and Manufacturers of America has sued the Department of Health and Human Services over what it calls price setting.

"Today's announcement is the result of a rushed process focused on short-term political gain rather than what is best for patients," PhRMA President and CEO Stephen J. Ubl said. "Many of the medicines selected for price setting already have significant rebates and discounts due to the robust private market negotiation that occurs in the Part D program today. Giving a single government agency the power to arbitrarily set the price of medicines with little accountability, oversight or input from patients and their doctors will have significant negative consequences long after this administration is gone. And insurance companies and their PBMs may further restrict access to medicines through increased utilization management, higher copays, and more restrictive formularies."

On the patient side, AARP Executive Vice President and Chief Advocacy and Engagement Officer Nancy LeaMond said:

"AARP applauds CMS for taking this next critical step to bring down out-of-control prescription drug prices. For too long, big drug companies have fleeced our country and padded their profits by setting outrageous prices, all at the expense of American lives. The number one reason seniors skip or ration their prescriptions is because they can't afford them. This must stop."

And The Hill reports that advocates for the MFP Program hope it will have a ripple effect across the pharma industry.

What are Analysts Saying?

Mara Goldstein, managing director of Mizuho Securities, told BioSpace in an emailed comment that:

… the impact of the Medicare Drug Price Negotiation Program on Merck would likely be “limited” given that Januvia is set to lose its exclusivity in 2026. “We’d note that other drugs on this list also lose exclusivity suggesting minimal commercial impact,” Goldstein said. “Our expectation was that the list would be focused on metabolic/diabetes and other chronic use medications, so we were not surprised to see the complexion of this list.”

Avalere Healthcare Consulting firm writes in their Drug Pricing Note:

Many of the products on the list already offer significant price concessions and rebates to Part D plans, given the existing competitive dynamics. “The net Part D price for many of the selected drugs is already below the ceiling formula outlined in the statute. It is unclear how much CMS negotiation will succeed in driving additional savings without causing market disruption,” said Milena Sullivan, Managing Director. “All eyes will be on how this affects the commercial market and whether it turns Part D net price into a de facto reference price in the therapeutic area.”

Affecting competition - Other products in the class should also weigh the merits of evidence submissions. “Given potential competitive dynamics, competitors of the selected drugs need to consider whether to submit evidence to CMS supporting the overall value of the drug class,” said Michael Ciarametaro, Principal.

These negotiations will certainly be something to keep Eyes On:

  • The way the negotiations proceed, or not, due to litigations.

  • The reaction and participation of patients and advocacy groups.

  • The impact on payers/Part D plans.

  • How the Industry reacts, evolves, and changes its strategies for value dossiers, pricing, and competitive actions around products vs. therapeutic class tactics.

For more insights from PharmaTell Studio check out some reports here, here, and here.

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