The Medicare Drug Negotiation Program (MDNP) established under the Inflation Reduction Act (IRA) allows the Centers for Medicare & Medicaid Services (CMS) to negotiate Maximum Fair Prices (MFPs) for a subset of high-spend drugs. MFPs for the first 10 Part D negotiated products will take effect in 2026. Starting in 2028, physician-administered drugs covered under Part B will also be included in the MDNP. On August 15, CMS announced the final MFPs for the first 10 Part D products selected for negotiation. This notice also shed some light on CMS’s process and savings priorities. The agency reported negotiated discounts relative to list prices ranging from 38% to 79%, with an average discount of approximately 63% (non-weighted). At the same time, Avalere estimates that negotiated MFPs for the 10 selected drugs compared to estimated 2023 net prices result in discounts ranging from less than 1% to approximately 40%, with an average discount of approximately 20% (non-weighted).

CMS is actively building the infrastructure for MFP effectuation in the supply chain. Even though the initial focus is on operationalizing access to MFP remains on Part D drugs, it is important for stakeholders to consider options for Part B effectuation and their impact on physicians and the patients they care for.

IRA Impact on Part B Reimbursement

For Part B drugs, CMS now primarily uses the product’s average sales price (ASP) plus a 6% add-on payment to reimburse providers. This percentage-based add-on payment, subject to sequestration, is intended to support community practice economics, as it covers a range of overhead costs, including the complex medication storage, shipping, inventory management, and other factors associated with many physician-administered products.

Under the IRA, providers will continue to receive a 6% add-on payment for Part B drugs, but the statute requires that payment will be based on the MFP of the drug, which is expected to be significantly lower than the ASP. The IRA also outlines a formula to calculate the maximum amount (ceiling price) that Medicare will pay for negotiated drugs, which factors in each product’s number of years on the market. CMS considers an array of other data and evidence factors, including data submitted by manufacturers, patients, providers, and other stakeholders.

Physician Impact Analysis

The statute does not explicitly exclude a Part B-negotiated drug’s MFP from being reported into ASP calculations but does explicitly include it in Best Price. Therefore, it is widely assumed that as the MFP is operationalized in Medicare and reported in Best Price, it will also drive down a negotiated drug’s ASP. This is important because commercial and Medicare Advantage (MA) contracts with physicians are typically tied to ASP. As a result, ASP erosion over time will not only impact Medicare fee-for-service (FFS) payment, but it will also reduce commercial and MA reimbursement, which may compound the financial impact that providers face from the IRA.

To quantify the effect of IRA Medicare negotiation on add-on payments, Avalere analyzed the projected changes to provider reimbursements for a set of physician-administered drugs likely to be negotiated by CMS when Part B products are included in the program. An earlier Avalere analysis shows that IRA could lead to an average of 47% add-on payment reduction in Medicare FFS reimbursement for providers who furnish the Part B drugs initially targeted for negotiation.

Avalere updated the prior analysis to estimate the impact on four therapeutic areas in Medicare and the commercial market. The analysis focused on 10 commonly used physician-administered therapies likely to be targeted for negotiation between initial price applicability year 2028 to 2032, based on Medicare spending, Food & Drug Administration (FDA) approval date, and expected biosimilar entry. The products fall into 4 therapeutic categories: oncology/hematology (4 products), immunology (3 products), respiratory (1 product), and neurology (2 products).

Avalere’s model shows the average decrease in ASP across the 10 Part B drugs through the end of 2032 if MFP discounts are reflected in ASP calculations. The analysis finds a minimum loss of add-on payments of $25 billion for providers across Medicare and the commercial market between 2028 and 2032 in an IRA scenario relative to one where MFP was not effectuated across this timeline. However, the reductions could be larger if CMS negotiates prices below the maximum ceiling price outlined in the statute. The experience with the first 10 negotiated drugs shows that for the vast majority of the products, the negotiated MFPs were below the estimated ceiling.

For this study, Avalere estimated scenarios for three levels of MFPs representing high, medium, and low negotiated prices. Under the high scenario, MFPs for negotiated Part B products are set to the statutory ceiling price, resulting in relatively less decline of the ASP. Under the low scenario, Avalere assumed a potential cost-recovery model as a de facto MFP floor, whereby CMS does not provide any upward clinical value adjustment to the 10 drugs; this scenario would result in the most significant downward pressure on ASP. Under a medium scenario, Avalere assumed MFPs are set in between the statutory ceiling and the cost-recovery floor (Figure 1).

Should CMS set MFPs for Part B drugs below the ceiling, the total amount of add-on dollars lost by providers who administer the 10 drugs selected for negotiation could increase to $31B or $37B under the medium and low MFP scenarios, respectively. The impact would be most significant for providers who administer oncology/hematology drugs, followed by physicians who administer any of the immunology products slated for negotiation.

For the three oncology/hematology products selected for this analysis, providers are projected to face a 39% to 64% decrease in Medicare FFS add-on payment, along with a 13% to 21% reduction in commercial and MA add-on payment. Across both markets, this amounts to a $12B to $19B projected reduction in add-on payments to providers from 2028 to 2032 (Figure 1).

Across the high, medium, and low MFP scenarios, the reduction in add-on payment could range between 42% to 61% in Medicare FFS, and between 12% to 18% in the commercial market (Figure 2).

*Note: Magnitude of impact to ASP and provider add-on is based on several parameters including MFP, volume and price increases over time, and percent of commercial market reimbursed at ASP.

*Note: Magnitude of impact to ASP and provider add-on is based on several parameters including MFP, volume and price increases over time, and percent of commercial market reimbursed at ASP.
** Commercial estimate includes Medicare Advantage

What’s Next

Stakeholders have been focused on the more immediate impacts of Part D negotiation and may not be adequately considering the downstream consequences of Part B negotiation, given the two-year lag in implementation. Given that the IRA explicitly operationalizes Part B negotiation as a reimbursement cut in Medicare with implicit spillover into the commercial market, the law may place a significant burden on physicians regardless of the beneficiary’s insurance coverage (except Medicaid). Stakeholders should be aware of these potential impacts and consider options that could preserve the IRA’s intent to lower costs for Medicare and beneficiaries, but also limit the financial burden on providers.

Methodology

Avalere estimated the impact of 10 drugs likely to be subject to IRA negotiation between 2028-2032, based on historical Medicare FFS claims data. Avalere estimated high, medium, and low range estimates of MFP for this analysis.

The magnitude of impact to ASP and provider add-on is based on several parameters, including MFP and volume and price increases over time.​ The model assumes that all commercial reimbursement is tied to ASP. Avalere assumed an every-other quarter increase of 1.5% in WAC, volume increase of 1.5%, and no off-invoice discount for drugs included in this analysis. The model assumes that providers continue to acquire the drug at ASP and receive a retrospective “true-up” refund for negotiated products, which is included in ASP calculations.

Funding for this research was provided by Community Oncology Alliance. Avalere retained full editorial control.