On June 30, the Centers for Medicare and Medicaid Services (CMS) issued revised guidance on the Inflation Reduction Act’s (IRA) Medicare Drug Price Negotiation Program for initial payment applicability year (IPAY) 2026. The revised guidance significantly changes certain provisions of the March draft guidance, including increasing patient involvement in the negotiation process, clarifying terms of the orphan drug exclusion, and removing restrictions on manufacturers disclosing information during the negotiation process. The negotiation process as outlined in the revised guidance will begin with the selection of 10 Part D drugs on September 1. Additionally, CMS released a second draft Negotiation Data Elements Information Collection Request (ICR) with a comment period ending August 2.

Evidence and Data Changes

The revised guidance and second draft Negotiation Data Elements ICR increase patient and caregiver involvement in the negotiation process. Draft guidance did not include an opportunity for patients and caregivers to meet with CMS. In the revised guidance, however, CMS said that it would host listening sessions for patients and caregivers after drug selection in fall 2023.

“It’s clear that CMS responded to many commenters’ requests that the agency formally seek participation from the patient community,” said Policy Practice Director Kelly Brantley. “How CMS weighs and considers information from the array of respondents, including patients, will tell us a lot about the value of this approach to public engagement. If the patient community’s contributions to this process can be detected in CMS’s decisions, we might expect robust response from patients and caregivers.”

Additionally, CMS clarified in the revised guidance that it will consider quality of life, productivity, and patient independence when assessing the impact of a selected drug or therapeutic alternative. The agency also added a question to the Negotiation Data Elements ICR pertaining to patient and caregiver experience.

Along with increasing patients’ and caregivers’ role in the data submission process, CMS altered various definitions pertaining to the data submission requirements. Terms with new definitions include “unmet need,” “therapeutic alternative,” and “specific populations.”

“The revised guidance offers important changes and clarifications to the negotiation process, including an expanded definition of unmet need that is grounded in prior policy,” Senior Consultant Jordan Banks said. “Changes also create additional avenues for manufacturer and patient input to CMS, but ambiguity remains in the specific methodology for the impact of value factors and manufacturer data on maximum fair price (MFP).”

Part D Formulary Management

One key question about IRA implementation has been how plans will react to changing incentives under both negotiation and Part D redesign. Some commenters on the initial guidance expressed concern that plans would add utilization management restrictions for negotiated drugs, and CMS stated in the revised guidance that the agency “shares concerns” that Part D plans may prefer non-selected drugs over selected drugs or apply utilization management on selected drugs. However, rather than impose additional requirements on Part D plans, CMS signaled the agency would evaluate Part D formularies during the bid process and expect plans to justify disparate treatment of negotiated drugs and non-negotiated alternatives.

“It is notable that CMS acknowledged in the revised guidance that non-selected drugs may be preferred over selected drugs,” Managing Director Matt Kazan said. “To understand in what circumstances this possibility may exist, both Part D plans and manufacturers need to consider how potential MFP amounts for Part D selected drugs will affect plan economics prior to bid submission. The extent to which Part D plans do prefer non-selected drugs over selected products and how aggressive CMS pushes back against such formularies will indicate if policy changes for IPAY 2027 are likely.”

Even with these changes, Avalere Senior Advisor Neil Lund said the fundamentals of formulary positioning will remain unchanged. He explained, “While negotiated drugs must be on a plan’s formulary, the key consideration for plan formulary placement and management will continue to be net plan cost. Although the impact of manufacturer rebates is reduced by the IRA, it remains significant. So, where there are competing drugs in a class, I would expect plans to continue negotiating supplemental rebates in exchange for formulary position for negotiated drugs.”

Negotiation Process Changes

In the draft guidance, CMS said that manufacturers would not be permitted to publicly disclose any information about the negotiation process. In the revised guidance, CMS stated that manufacturers would be able to disclose any information of their choosing, though upon disclosure that information and related data would lose any proprietary status.

“While CMS has relaxed the confidentiality and non-disclosure provisions associated with the negotiation program in the final guidance, manufacturers should carefully evaluate the implications of sharing information publicly as part of their external engagement and advocacy strategies,” Managing Director Megan West said.

With the publication of the revised guidance, manufacturers must accelerate preparations for the IPAY 2026 negotiation process, said Managing Director Mark Gooding: “The timeline of the IPAY 2026 negotiation means manufacturers must have their clinical and economic evidence prepared and internal processes in place if and when their product is selected for the price negotiation process in the coming months.”

Other Provisions

The revised guidance says that CMS will engage a Medicare transaction facilitator (MTF) to help effectuate access to the MFP through a retrospective refund model. However, many aspects of MFP effectuation remain unclear.

“Currently, no single stakeholder in the supply chain has all the data elements needed to be able to operationalize MFP through a retrospective refund model,” Managing Director Omar Hafez said. “CMS’s revised guidance suggests that an MTF will fill this role but offers no further details around how they will connect to and bridge the various transaction data feeds.”

“CMS is choosing to add a new data entity, which may or may not be different from the third-party administrator that will facilitate the Manufacturer Discount Program under the Part D redesign,” said Milena Sullivan, managing director at Avalere. “The addition of the MTF will significantly improve the ability to verify that only MFP-eligible individuals get access to the negotiated price, but it does not solve other open questions related to 340B discount non-duplication or patient cost-sharing. How the MFP is effectuated in the market is one of the most important operational decisions, as it will ultimately determine the administrative and financial burden for various players in the supply chain, but CMS left various questions for future consideration.”

Additionally, CMS clarified the distinction between its consideration of an orphan designation and an approved indication. The agency stated that a drug with multiple orphan drug designations will be disqualified from the exemption. However, if a designation is withdrawn prior to CMS identifying eligible single source drugs for selection, the product will not be disqualified from the exemption.

“In the short term, manufacturers with products or pipeline assets within the rare disease space will need to assess the current status of orphan designations for indications that have yet to be approved and weigh options and timeline of requesting a withdrawal from the Food and Drug Administration,” Principal Kelly George said. “More broadly, this guidance provides one more consideration for manufacturers to account for in early development. For example, sponsors should now consider the timing of orphan drug designation requests for upcoming pipeline products. These requests previously were incentivized to occur earlier in development, but early requests now may lead to additional consequences.”

Dive Deeper

Avalere’s experts in Medicare, drug pricing, and IRA implementation are supporting healthcare stakeholders to anticipate, understand, and respond to unfolding program details. To learn how we can help you assess the potential impact on your business and identify outstanding questions, connect with us.