On January 11, 2023, the Centers for Medicare & Medicaid Services (“CMS”) released an implementation plan and related documents supporting the first round of Medicare drug price negotiation under the Inflation Reduction Act (“IRA”) (Pub. L. 117-169). The plan contemplates extensive activities in 2023, including public engagement, information collection, the issuance of guidance, and the start of the negotiation process.
CMS’s implementation plan follows the U.S. Department of Health & Human Services Secretary’s formal delegation of authority to CMS, which was published on January 10, 2023 and formalizes the agency’s role in implementing various aspects of the IRA. 88 Fed. Reg. 1390 (Jan. 10, 2023). CMS had previously announced the formation of a new group within the Center for Medicare, the Medicare Drug Rebate and Negotiations Group, to implement and administer the Drug Price Negotiation Program as well as the new inflation rebates established under the IRA. 87 Fed. Reg. 62433 (Oct. 14, 2022).
This client alert summarizes the Medicare Drug Price Negotiation Program implementation plan and outlines considerations for stakeholder input as part of this process. For more information on the IRA and potential considerations for the Negotiation Program, please refer to Covington’s webinars on the IRA and value frameworks or the firm’s prior client alert covering the IRA as enacted, or contact us to learn more.
I. CMS’s IRA Drug Price Negotiation Program Implementation Plan
When the IRA was enacted in August 2022, it authorized the federal government to engage in negotiations for Medicare Part D products (starting in 2026) and Part B products (starting in 2028). The statute sets forth extensive provisions governing the selection of drug products for negotiation, potential pricing resulting from negotiation, the process of negotiation, and applicable exemptions, among other considerations. For the first “initial price applicability year” (“IPAY”) of the program, 2026, the statute sets forth a detailed timeline that requires announcing selected drug products on September 1, 2023, signing manufacturer agreements by October 1, 2023, concluding the negotiation period by August 1, 2024, publishing maximum fair prices (“MFPs”) by September 1, 2024, and publishing an explanation for the MFP by March 1, 2025. The first MFPs negotiated under the program will become effective on January 1, 2026.
CMS’s January 11, 2023 implementation plan contemplates extensive activities ahead of the September 1, 2023 selected drug publication date. These activities include:
- Public Engagement. CMS will seek feedback and insights from various stakeholders through stakeholder calls, quarterly strategic meetings, monthly technical calls with CMS staff, email comments from the public, and comments on the draft program guidance and information collection requests (“ICRs”).
- Program Guidance. CMS will solicit comments on key elements in draft guidance for implementation of the negotiation program in IPAY 2026, including manufacturer agreement terms and conditions, an approach for setting forth offers based on statutory factors, the process for offer and counteroffer exchanges, content of an explanation for the MFP, method for applying the MFP across different dosage forms and strengths of a selected drug, dispute resolution, and processes for compliance monitoring and imposition of civil monetary penalties for violations.
- Data Collection. CMS proposes three ICRs related to the negotiation program:
- The small biotech exception ICR, through which CMS will collect information about a manufacturer’s aggregation as a single employer (pursuant to section 52 of the Internal Revenue Code of 1986) to determine which covered Part D drugs qualify for the exception;
- The negotiation data elements ICR, which will include manufacturer-specific data and voluntary submissions by other stakeholders that can be considered when negotiating the MFP; and
- The offer and counteroffer exchange ICR, which will detail the information that manufacturers must provide in any counteroffers.
Importantly, the implementation plan underscores that, once selected drugs are announced on September 1, 2023, both manufacturers and other stakeholders will need to prepare and submit information to the agency by October 2, 2023. In addition to manufacturer-specific data submissions (e.g., research and development costs and recoupment, unit cost of production and distribution, prior federal financial support, patent and exclusivity information, and market data, revenue, and sales volume data), CMS’s ICR on negotiation data elements will outline a process for manufacturers and other stakeholders to voluntarily submit information related to alternative treatments, which could include comparative effectiveness and cost information.
CMS's implementation plan confirms key dates in the negotiation timeline (as set forth by statute). After selected drug products are announced on September 1, 2023, manufacturers enter into agreements by October 1, 2023, and information is submitted to CMS by October 2, 2023, the next key dates in the negotiation process will include:
- February 1, 2024: CMS sends initial MFP offers to manufacturers with justifications for the MFPs, beginning the negotiation process.
- March 2, 2024: deadline for manufacturers to propose counteroffers (based on a 30-day period from receipt of the initial MFP offer).
- August 1, 2024: conclusion of the negotiation period.
- September 1, 2024: publication of negotiated prices for IPAY 2026 drugs.
- January 1, 2026: negotiated prices for IPAY 2026 drugs take effect.
CMS notes that topics not relevant to negotiation for IPAY 2026 (e.g., the renegotiation process) will not be addressed in guidance at this time.
II. Considerations for Stakeholder Input and Preparation of Initial Submissions
CMS’s public engagement opportunities, program guidance, and data collection activities will provide opportunity for comment on important aspects of the Medicare Drug Price Negotiation Program. Given the timeline CMS has outlined in its implementation plan, interested stakeholders should take early action to identify their positions on various aspects of the program and prepare for the submission of comments for CMS’s consideration.
In particular, manufacturers with products potentially subject to the first round of negotiation (with a selected drug publication date of September 1, 2023) should consider collecting the information required for submission (due October 2, 2023) well in advance of this timeline. Given that there will be just over a month between the selected drug publication date and the submission of required information to CMS, manufacturers should consider modeling in advance the likely impact of the program on current and pipeline products in order to identify potential issues.
Covington advises extensively on the IRA and the new Medicare Drug Price Negotiation Program. If you have any questions concerning CMS’s implementation plan or the new statutory provisions, please contact the members of our Health Care and Food, Drug, and Device practice groups.
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