Medicare releases updated guidance ahead of drug price negotiations

The Centers for Medicare and Medicaid Services (CMS) released revisions to their negotiation guidelines on drug pricing on Friday, providing more transparency the process.

The negotiating powers resulting from the passage of the Inflation Reduction Act (IRA) have put significant pressure on the pharmaceutical industry as it awaits the start of formal negotiations with CMS over Medicare drug prices.

And while the industry waits on the list of the first drugs to be targeted in the fall due to their high prices.

Drug stocks were flat on Friday's news, which was released just before the long bank holiday weekend.

“The very few substantive changes to the final guidance demonstrate that CMS viewed this as a box-checking exercise and not an opportunity to mitigate the negative impact of this pricing policy on patients or the broader healthcare sector,” industry lobby group PhRMA said in a statement on Friday .

Several lawsuits have already been filed against the US Department of Health and Human Services (HHS), which oversees CMS, calling the process unconstitutional and alleging that it was not a voluntary or transparent process.

When asked by reporters about the lawsuits, CMS Administrator Chiquita Brooks-LaSure said, “We feel the law is on our side.”

Bill Sweeney, AARP's SVP of government affairs, said he believes the law has merit and the industry will use forceful threats to prevent it from going into effect.

“We're not at all surprised that drug companies filed suit against the law before it even went into effect,” Sweeney said. “The incentive for the drug companies is to try to prevent this thing in any way they can and continue charging American taxpayers and seniors on Medicare these exorbitant prices.”

The industry has also threatened that the negotiations would hamper industry innovation and deny Medicare members access to life-saving drugs.

In Friday's revised guidance, the agency said it would share more information and was ready to make the process more transparent.

U.S. President Joe Biden speaks during an event to discuss Social Security and Medicare held at the University of Tampa in Tampa, Florida on February 9, 2023. (Photo by Joe Raedle/Getty Images)

“CMS will not publicly discuss ongoing negotiations prior to the publication of the Maximum Fair Price (MFP) Statement unless a (drug manufacturer) publicly discloses information about the negotiation process. In addition, CMS treats certain data submitted by a (drug manufacturer) as proprietary” unless the manufacturer chooses to publish the data first, the guidance reads.

PhRMA said in a statement the changes don't go far enough.

“While we appreciate that CMS has recognized that it has gone well beyond the legal limits and removed the proposed ‘gag clause' in the final guidance, CMS will continue to limit the ability for manufacturers to raise concerns and provide feedback “, it was said.

“We received more than 7,000 thoughtful and constructive public comments on the initial guidelines,” said Brooks-LaSure. “We have considered all feedback to ensure our traffic rules for the Medicare negotiations are aligned with the people we serve.”

Medicare Director Dr. Meena Seshaman also clarified during a call with reporters that the exchange of information includes exchanges between manufacturers and that any information shared should also be in accordance with anti-competitive practices rules.

The focus, she said, is on fulfilling Congress' intent to pass the Drug Cost Reduction Act.

At the same time, a number of companies are losing exclusivity on blockbuster drugs, likely leading to increased competition as generics and biosimilars enter the market. AbbVie (ABBV) lost exclusivity on its blockbuster Humira this year and already has biosimilar competition, while Johnson & Johnson's (JNJ) Stelara is set to lose its patent this fall.

“The negotiation process is for those drugs that don't have significant competition, and when there is significant competition, those drugs are no longer selected,” Seshamani said.

“The program does not involve any real ‘negotiations' at all. Instead, it forces pharmaceutical manufacturers to accept prices capped at the price chosen by HHS, while imposing no significant limitations on HHS' new pricing powers,” the HHS-filed PhRMA lawsuit reads.

Other changes include parameters for drug selection and an emphasis on the fact that manufacturers can opt out of the process but pay a hefty tax to do so — another element of the bill the lawsuits say is unconstitutional.

“The drug pricing program then forces manufacturers to deliver a government-approved message, forcing them to ‘agree' to the government-dictated price… under the threat of a crippling excise tax for non-compliance. The ‘tax' itself is staggering and sweeping “up to 1,900% of a manufacturer's total US sales of a drug,” the lawsuit states.

Seshamani said Friday that the agency has had an open door and been proactively holding discussions with all stakeholders. “We want to implement this law as thoughtfully as possible and will continue to do so,” Seshamani said.

Leigh Purvis, AARP director of healthcare costs and access, told Yahoo Finance on Friday that CMS appears to be fighting for patients but is wary of criticism.

“They react. I think to the extent that we're seeing criticism, I think what we're seeing, at least today, is an indication that that's what they're hearing too. And I think they do.” “It's done well trying to get everyone around the table,” said Purvis.

CMS appears to remain on track to release the first ten selected drugs at negotiated prices in September.

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