On March 15, the Center for Medicare and Medicaid Services (CMS) issued initial guidance on Medicare negotiation and the maximum fair price (MFP). The initial guidance highlighted several processes, including the identification of selected drugs and the negotiation process for price applicability year (PY) 2026.

Identification of Selected Drugs for Initial PY 2026

The program guidance outlined how CMS will identify selected drugs for initial PY 2026. To identify qualifying single-source drugs, CMS will aggregate spending for all products that have the same active moiety/ingredient, including those marketed pursuant to different New Drug Applications (NDAs) or Biologics License Applications (BLAs), based on the earliest date of approval or licensure. CMS also clarified that fixed-dose combination products that have two or more active moieties/active ingredients will be viewed as distinct from each constituent product for the purpose of identifying single-source drugs and will not be aggregated with individual constituents for the selected drug list.

In response to the guidance, Kelsey Lang, Principal, explains, “Manufacturers have eagerly awaited clarification from CMS on how it would define ‘qualifying single-source drug’ for purposes of determining negotiation eligibility and price. CMS’s decision to aggregate formulations regardless of time on market may accelerate and amplify the impact of Medicare negotiation for some products.”

When asked for thoughts on how stakeholders should respond to this part of the initial guidance, Kelly George, Principal, offered the following: “Now that additional clarity has been provided on the aggregation approach for dosage forms and NDA/BLA filings, stakeholders should evaluate current marketed products and pipeline strategies to determine the extent of differentiation or aggregation of products. Open questions remain on how CMS will interpret the terms ‘active ingredient’ and ‘active moiety’ with regards to mixtures or combination products.”

Negotiation Factors & Process

CMS provided additional details about the requested evidence, due by October 2, for manufacturers entering into negotiation for PY 2026.

Milena Sullivan, Managing Director, says, “Given the precedent-setting nature of the first year of Medicare negotiations, all eyes are on CMS to conduct a robust and transparent process despite political pressures to generate expected savings. The guidance document clarifies that CMS will cast a wide net in collecting evidence on the value of negotiated products but does not provide sufficient clarity on how various evidence types will be treated or how clinical experts or patient advocates will be engaged.”

According to the initial program guidance, primary manufacturers (those who hold the NDA/BLA for the selected drug) are responsible for submitting manufacturer-specific data, but all stakeholders are permitted to submit “evidence about therapeutic alternatives” for selected drugs. To evaluate evidence about therapeutic alternatives, CMS will consider study design, credibility, and relevance. The initial program guidance also included details on how to aggregate data to calculate the non-federal average manufacturer price and how CMS will define “unmet medical need.”

However, additional details remain unclear, explains Mike Ciarametaro, Principal: “The initial program guidance provided Wednesday leaves many open questions regarding how CMS will determine the negotiated price. The biggest takeaways include a broad definition of therapeutic alternatives, a narrow definition of unmet need, and a primary focus on the Medicare population.”

Jordan Banks, Senior Consultant, says. “The initial Medicare Drug Pricing Program guidance provides some clarity on the scope and responsibilities of manufacturers for data submission, but CMS data collection methods will be published in a forthcoming Negotiation Data Elements Information Collection Request (ICR). Manufacturers with products likely to be negotiated in 2026 will have a limited time from final publication of the Negotiation Data Elements ICR and the submission deadline on October 2, 2023. Those manufacturers should consider assimilating and analyzing evidence today, with the latest guidance as their lens.”

The initial guidance touches on details related to operationalizing the MFP, leaving many unanswered questions for stakeholders says Mark Gooding, Managing Director: “The draft guidance provides some needed clarification on the operational requirements for a manufacturer entering an agreement with CMS to negotiate and provide an MFP, including the responsibility manufacturers will have to provide access to the MFP for eligible patients. Manufacturers and stakeholders throughout the pharmaceutical supply chain must be prepared to operationalize and address any challenges presented by these new requirements, whether through prospective contracting or retrospective chargebacks or rebates.”

What Comes Next?

Stakeholders have 30 days from program guidance issuance to respond to CMS’s proposed methodology. There are several places in the initial guidance however where CMS issued guidance as final without solicitation, including section 30, which focused on the identification of selected drugs for initial price applicability year 2026 (with the exception of the Small Biotech Exception ICR).

CMS invites public comment through April 14, after which the agency will issue revised guidance. According to CMS’s timeline, revised guidance is expected in Summer 2023.

Ryan Urgo, Managing Director, says CMS’s Inflation Reduction Act (IRA) guidance covers many key issues related to the Medicare negotiation process, but stakeholders need to consider a broader engagement strategy to address lingering uncertainty and the risk of unintended consequences in critical areas related to drug selection and valuation.

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.