Part 1 – Healthcare Economist

CMS released guidance on IRA price negotiation last week. Below are some highlights regarding how drugs will be selected.

Which drugs are eligible for negotiation?

• For small molecules, drugs have to be (i) FDA-approved, (ii) be FDA-approved at least 7 years ago, and (iii) have no generic equivalent on the market.
• For biologic molecules, drugs have to be (i) FDA-approved, (ii) be FDA-approved at least 11 years ago, and (iii) have no biosimilar equivalent on the market.

Combination medications that are always prescribed together will be considered as if one treatment.

Drugs ranking in the top 15 of Part D spending between November 1, 2023 and October 31, 2024 will be considered negotiation eligible.

How do drugs qualify for the orphan drug exclusion?

Drugs must be indicated for only 1 rare condition. CMS states that “A drug that has orphan designations for more than one rare disease or condition will not qualify for the Orphan Drug Exclusion, even if the drug has not been approved for any indications for the additional rare disease(s) or condition(s).”

How do drugs qualify for the low-spend exception?

Drugs with a combined annual Medicare spend less than $200m will not be considered for price negotiation. The $200 includes both Part B and Part D spending during the period November 1, 2023 and ending October 31, 2024. The $200m threshold will be adjusted for inflation (CPI-U) in future years. Total allowed charges (i.e., Medicare, beneficiary and other third party payments) will be used to calculate if drugs meet this threshold. If a Part B drug is bundled with other drugs in a single HCPCS code, CMS will use average sales price (ASP) data.

Are plasma-derived products excluded from price negotiation?

Yes.

How do companies meet the small biotech exception?

CMS is using two basic rules:

• Non-material share of Part D cost. CMS requires that a drug’s part D expenditure is <1% of total CMS Part D spending. The rationale is that if a small biotech has a drug that makes up more than 1% of Part D expenditures, it’s probably no longer a small biotech.
• Small biotech’s sales of drug comprise the majority of sales. CMS requires that at least 80% of the company’s Part D expenditures accrue to the drug under consideration. CMS’ s logic is likely that if a company has a lot of drugs being sold, it is probably not a small biotech. However, if a small biotech has 1 main drug and one that just entered the market, they don’t want to penalize the small biotech company from brining another drug to market. However, clearly, this provision will de-incentivize the company bringing a second (or third) drug to market and one could see small biotechs creating spin off firms for when second and third drugs come to market.

How does CMS determine if a biosimilar is likely to enter the market?

CMS requires that a biosimilar manufacturer submit a request for this delay. The biosimilar manufacturer must either (i) be the holder of the BLA for the biosimilar or (ii) if the biosimilar has not yet been licensed, the firm must be the sponsor of the BLA that has been submitted for review by FDA. CMS, however, will not consider a biosimilar delay if the biosimilar firm was granted a BLA more than a year ago, but had not started marketing the product. Also, the biosimilar manufacturer cannot be the same manufacturer as the reference biologic. To insure there is high-likelihood a biosimilar enters the market, CMS requires that (i) there are no outstanding patents, (ii) the biosimilar firm provide “disclosures about capital investment, revenue expectations, and actions consistent with the normal course of business for marketing of a biosimilar biological product,” (iii) has an agreement in place with FTC to market the product, and (iv) that a manufacturing schedule has been submitted to FDA.