Drug Pricing

Medicare Negotiations Are Now the Law, but How to Implement Them?

Oct. 18, 2022 – The Centers for Medicare & Medicaid Services (CMS) is beginning to establish a framework for the Medicare drug pricing negotiations mandated in the recently enacted Inflation Reduction Act (IRA), a process that will be complicated and controversial.

“Passage of the Inflation Reduction Act – including provisions to mandate Medicare negotiations on pricing for a small number of expensive drugs – was only the first part,” said Coalition for Healthcare Communication Executive Director Jon Bigelow. “Now, CMS must determine how to choose the drugs to be covered.”

Among other price-limiting provisions in the legislation, Congress authorized negotiations on the prices to Medicare for select high-cost prescription drugs, beginning with 10 drugs in 2026. The legislation specifies that the chosen drugs will have been on the market for at least nine years (13 years if a biologic), so they will not be launch drugs; the chosen drugs also will have no generic competition.

To implement the new program, CMS has proposed a plan to establish a Medicare Drug Rebate and Negotiations Group with six divisions, according to STAT, which reports that the proposal includes hiring 95 full-time FTEs.

Issues to be nailed down during the implementation process include which drugs will be subject to negotiation and where to set the prices. Although the negotiations will directly cover only drugs taken by Medicare patients, CMS will consider ways in which and how these Medicare-negotiated prices might influence the private insurance market.

The industry also will be watching the process closely. Some financial analysts have noted that pharma companies may consider strategies to avoid having their products get on the list, for example by launching their own generics with limited promotion. Further, there are expectations of lawsuits intended to halt implementation of the legislation, although the IRA was written to limit the avenues for challenge, and any lawsuits would take time to wind through the courts.

Although the IRA’s drug pricing reforms are popular among consumers, four Republican senators – Sen. Jim Lankford (Okla.), Sen. Mike Lee (Utah), Sen. Cynthia Lummis (Wyo.) and Sen. Marco Rubio (Fla.) – introduced legislation in early October (the “Protecting Drug Innovation Act”) that would repeal the reforms and rely on competition to keep drug prices down while encouraging continued innovation in the pharmaceuticals industry.

Bigelow believes this bill is unlikely to pass in the next Congress. “An October Gallup poll showed that 84 percent of Americans, including more than 50 percent of Republicans, favor mandating Medicare negotiations with drug companies. In this midterm election cycle, Republican candidates are

largely running silent on healthcare issues, while Democratic candidates are touting their efforts to reduce prices,” he said. “Given expectations that both chambers will be very closely divided in the next Congress, any material change in the recent legislation, either to expand the number of drugs covered or to repeal Medicare negotiations, seems unlikely.”

Bottom line, he said, “how the rules for implementation are established will have significant impact on how much money the government saves, on which pharma companies are most affected, on what workarounds the pharma industry may put in place, and on whether lawsuits would succeed.”