Analysis: What to Expect From CMS' Inflation Reduction Act Drug Pricing Announcement

In an interview with Pharmacy Times, Lindsay Bealor Greenleaf, JD, MBA, a solution leader of federal and state policy at ADVI Health, talks about what to expect from the major announcement by the Centers for Medicare and Medicaid Services (CMS) on lowering the price of 10 drugs selected last year as a result of the Inflation Reduction Act. Greenleaf discusses what cost savings would mean for pharmacists and their patients, and the process which CMS goes through to negotiate prices.

Pharmacy Times: What should we expect out of CMS’ announcement tomorrow?

Lindsay Bealor Greenleaf: We still don't know exactly how much information we'll get out of CMS. There's a chance that President Biden and Vice President Harris will maybe give a big speech tomorrow, and maybe speak at a high level to what the maximum fair prices (MFP) are. So we'll just have to see. There's also a chance that they do end up posting the actual MFPs. If that happens, we expect for it to be posted tomorrow morning, before the market opens. And then from there, the real question will be, what information does CMS give us to help us understand more context on the MFPs for each of the drugs? What are they going to compare those prices to? We expect for them to use WAC, the wholesale acquisition cost, also known as a drugs list price. That's the pre-rebate, pre-discount; that's the highest price that a drug could have. We would expect for CMS and the White House to compare the MFPs to a drugs WAC. For one thing, that's a publicly-posted price, and the other piece is, just politically, by making that comparison to a WAC price, the White House is going to be able to say that, you know, they achieved much steeper cuts than might be the case if you're making a comparison to a net price or something else. The other piece is we know that net prices are considered confidential. This is something that was stipulated in the Inflation Reduction Act, in the law, and also in recent guidance coming from the agency. So the real benchmark is, how do these prices compare to a net price? But only an individual manufacturer really knows that about their own drug, and we really don't expect to get any information tomorrow.

PT: How will these new, fixed prices compare to the current market prices and patient affordability for these drugs?

Greenleaf: So, we don't really know how they're going to compare to net prices, because that is a confidential price that only the manufacturer really knows. There are public sources out there; there's a Commonwealth Fund that was released in January, that happens to be tied to a past MedPAC report that gave kind of therapeutic area average rebate levels. So, there are some public reports that we've looked at that, you know, give us an idea of, at least their estimate of what a net price might look like for each of these drugs, but we won't know for sure. In terms of patient affordability, that's still a big question. There are a lot of moving pieces when it comes to out-of-pocket costs in Medicare Part D; for starters, Part D redesign will kick off in earnest in January. That's when the $2000 out of pocket cap becomes effective, starting in 2025. When the MFPs for these 10 drugs become effective in 2026, we will already have a $2000 maximum out-of-pocket cap in place for Part D patients. They will already feel as though their Part D drugs are more affordable at that time, and that's completely unrelated to this negotiation process, this faux negotiation process that CMS has been embarking on with the 10 manufacturers. The other piece on patient out of pocket cost, I would note, PBMs and their business practices were completely untouched in the Inflation Reduction Act. You know, there was nothing in there changing the way that rebating takes place, or the way that PBMs tend to provide favorable formulary placement for those drugs that provide the highest level of rebates. It will be interesting to see in 2026 if the PBMs provide favorable placement on the formulary for those 10 targeted drugs, or if they instead choose to give the preferred placement to competing products that are not subject to these MFPs and that are, in theory, able to provide higher rebates. That is something that remains to be seen. We won't know all that until we see formularies for 2026. When it comes out-of-pocket cost, this is something that PBMs and the Part D plans are still in control of.

PT: Are there factors that CMS considers when determining the prices for these drugs. Do you expect prices to vary?

Greenleaf: Yes. The first thing to think about when looking at these prices is, what is the ceiling price? In the Inflation Reduction Act, the law lays out a price ceiling for Part B and Part D drugs that are going to be subject to negotiation, and there is no floor. So, we always say, technically, CMS could say a drug’s worth $1. But the starting point to keep in mind is, what is the price ceiling? For Part D drugs, it gets a little complicated. It is the lower of that drug’s Part D net price, or a percentage of that drug’s, non-FAMP, and that percentage range is based on how old that drug is. So, for a lot of Part D drugs, and it's our suspicion for a lot of the drugs that are targeted for this first top 10 list, they're likely highly rebated products. We would expect that, for a lot of these drugs, it's their net price that's going to be the lower price. So that's the first thing I would note when we see these prices, the fact that, what role did the ceiling price play? And as we said, the actual net price is going to be confidential. So, the ceiling price is also going to be confidential. But you have to kind of think about that when you see these prices and try to judge if you think it came in close to the ceiling or not. But then there are a variety of factors that CMS has laid out in guidance, looking at, you know, clinical effectiveness, comparing a drug to what CMS considers to be therapeutic alternatives, looking at different outcomes, patient experience, safety, all of those things. And then also looking at manufacturer data that has been submitted related to whether the manufacturer has recouped their R&D costs and some other financial metrics like that. So, there are a lot of factors that went into this back-and-forth process. What's interesting, though, is these prices have to be released by September 1, and we do expect for them to come out tomorrow morning. But the actual rationale from the agency as to why they landed on that specific MFP that they're setting here, that rationale is not due until March 1 of next year. The prices are due 6 months in advance of when the actual rationale is due. It's kind of a strange sequence of events, but it is what it is that's laid out in the law. CMS could certainly release their rationale early, if they'd like to, I would expect we'd get some kind of rationale. It just, it might not be a lot of details; that remains to be seen tomorrow.

PT: Once these prices are set, are they able to be amended in the future if there are changes in supply or demand?

Greenleaf: The law allows for the MFPs to increase over time by inflation. The law also stipulates that CMS can renegotiate these drugs if CMS chooses to, and if they want to, just regardless of a drug's age and how long has been on the market. If CMS thinks there's market forces at play that they want to renegotiate, CMS has that discretion to do that. CMS is required to negotiate certain drugs as they meet certain like age thresholds there, a certain number of years since FDA approval. So, it's that renegotiation process which would result in the MFP changing as well as an inflationary increase, but that's really it. Otherwise, this is what you're looking at. The MFPs do not apply, though, after the generic or biosimilar competition comes to the market. You have to finish out that planned year, there's a formula for how long exactly the MFP sticks around after a generic or biosimilar launch, but generally speaking, you know somewhat soon after generic or biosimilar launches, then that that targeted drug would cease to have to offer be offered at that MFP.

PT: What impact should pharmacists and their patients expect because of this announcement?

Greenleaf: We'll see what information is given about patients and patient out-of-pocket costs, like I said, actual patient out-of-pocket costs still determined by PBMs and the Part D plans. So, we'll see. For pharmacists, there is still some time here between now and 2026 when these prices go into effect. I think they are closely watching right now what's going on with the MTF, the Medicare transaction facilitator. It's a lot of acronyms on this topic. The MTF will help effectuate the MFP at the pharmacy. It's all a complicated process. I think that the biggest piece for pharmacists is to make sure that they get their reimbursement right and that they don't come out harmed in this process. Given how complicated it is, I think a lot of pharmacists are nervous that they're going to get paid on time and that they're going to get paid the right amount, and that they're not going to kind of get caught up in some kind of mess between CMS and manufacturers. Whether all that works out remains to be seen. This guidance is still coming out, we're still working through it, so we'll keep you posted on that.

PT: Are there future actions that CMS or other agencies are expected to take involving drug pricing to keep an eye on?

Greenleaf: Well, it is an election year. I personally would be surprised if something new and significant would come out between now and the end of the year from the agency, just given that implementing the IRA is such a significant event already in and of itself. We're always closely watching the Center for Medicare and Medicaid Innovation, CMMI. They can put out what we call demonstration projects that, basically they can pretty much rewrite law when it comes to the Medicare program. When CMMI embarks on a demo, they have the power to waive all requirements within Title 18 of the Social Security Act. That means they can waive all the rules of Medicare. So, we look to them to see what they might be wanting to do on drug pricing. I think that we're most closely watching CMMI and kind of you know, drug pricing demo context, if we were to have a second Trump administration. If he wanted to do something different from implementing the IRA, something outside of that, you know, he might want to revisit some kind of international reference pricing demo, like the most favored nation model for Part B, drugs that he tried under his first administration, things like that. That would be coming out of CMMI. That's something we're watching. But you know, in the real near-term here, in the next couple of months, I think that there's already a lot going on, I'd be a little surprised if there's anything too significant before end of year.