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12 September 20237 minute read

CMS selects ten drugs for Inflation Reduction Act Medicare Drug Price Program: Key observations and what to expect

The Centers for Medicare & Medicaid Services (CMS) has announced the first ten drugs for Maximum Fair Price (MFP) setting through the Medicare Drug Price Negotiation Program, as directed by the Inflation Reduction Act (IRA).

The process for selecting the list of drugs for 2026, set forward in the IRA, authorizes the agency to choose among the medicines that are most costly to the Medicare Part D benefit and have no generic competition, with certain types of drugs being excluded from consideration.

The latest in our IRA healthcare series, this alert describes our key observations about the selected drugs in an effort to anticipate and prepare for future selection and its implications. Please see our previous alerts for more information on the passage of the IRA and CMS’s initial guidance on implementation of the MFP program.


The selected drug list was posted on August 29, 2023, slightly ahead of the September 1 deadline. The Biden Administration press release that accompanied the list highlighted the benefit of lower prescription drug costs, noted that biopharmaceutical companies oppose this policy, and asserted that biopharmaceutical company revenue is allocated more to stock buybacks than to investment in research and development for medicines.

While experts have offered projections of which drugs were likely to be selected based on available data, most did not accurately predict this specific list. The key areas we highlight based on this initial list of selected drugs and the selection process are unpredictability, cost, disease focus, expansiveness, and generic entry.

Uncertainty: A Reuters article from August 2023 summarized five Wall Street analysts’ projections of which drugs would be selected by CMS for maximum fair price setting. Four of the selected drugs were not on any of the five projections they summarized. Three drugs predicted by three or more analysts to be selected were not on the list. Presumably, the analysts based their projections on 2021 Medicare spending data, the most recent data publicly available from CMS at the time. CMS relied on data from June 2022 to May 2023, which is not publicly available. The lack of transparency into the data used to arrive at CMS’s list prohibits analysts and industry experts from independently determining the highest spending drugs likely to be selected.

Cost: Of the ten drugs selected, six cost less than $5,000 per Part D enrollee in the one year of drug claims analyzed, which is a level of annual expenditure below what would be considered a specialty drug. Two of the drugs selected exceed $100,000 in the average drug cost per Part D enrollee in the year analyzed. Many are in drug classes with multiple therapeutic options. Based on CMS data, it is not possible to determine whether the selected drugs have discounts or rebates that reduce their list price to Part D health plans. In competitive drug classes, rebate arrangements are common for preferred formulary position. The MFP ceiling price – the highest one that CMS can set – is the lesser of the current price net of discounts to Part D plans, or a formula set in the law relative to the non-Federal Average Manufacturer price. This MFP ceiling may create a disincentive to provide rebates if a product is likely to be selected for the list in future years.

Disease focus: Four of the ten selected drugs treat diabetes, four treat cardiovascular disease or related complications, and two treat immunological conditions. Six of the selected drugs have multiple indications in different disease states. Additional indications tend to expand the use of the drug, so this would indicate that clinical development for additional indications may be less financially advantageous than it was prior to the establishment of the Medicare Drug Price Negotiation Program.

Expansiveness: CMS indicated in March 2023 guidance and reaffirmed in June 2023 that it would group together all drugs by the same New Drug Application holder with the same moiety, which includes different dosage forms, brands, indications, and strengths. This is demonstrated in the selection, with one drug on the list having six different brands listed. This selection approach may discourage investment in the development of additional clinical development programs from the same moiety if it would expand product usage to the point where the moiety and its associated products would be selected for the MFP.

Uncertain generic/biosimilar entry: The IRA does not allow CMS to set the MFP for a drug if imminent biosimilar or generic competition is expected or if there already is bona fide marketing of a generic or biosimilar. “Bona fide” marketing of a generic or biosimilar is based on a totality of the circumstances, and not just whether the FDA has approved a biosimilar or generic.  For example, one of the selected drugs already has two FDA approved biosimilars, but neither biosimilar has launched, and there is no bona fide marketing.

With implementation more than two years away, if any of the other selected drugs experience generic or biosimilar competition before 2026, those drugs would also no longer be eligible for the MFP.  At least one of the listed drugs has the potential for a biosimilar competitor by 2026, which could mean that the MFP would not go into effect. And, if this occurs, CMS may not replace the ineligible drug with another for 2026 as the law states that up to ten drugs would be selected on September 1 for 2026.

Exclusions of note: A few of the factors that allow for an exemption or delay from being selected for negotiation include exceptions for drugs that 1) are manufactured by a small biotech, 2) treat a single rare disease (a narrow subset of orphan drugs), or 3) are a biological drug for which a biosimilar manufacturer requests a delay because there is a high likelihood that its biosimilar biological product will be licensed and marketed within two years. At this time, there are no drugs that would qualify for a delayed selection as a result of upcoming market competition from a biosimilar biological product. In addition, CMS determined that four drugs qualified for the small biotech exemption.

What happens next?

There have been a number of filed lawsuits challenging these provisions of the IRA, the authority granted to CMS, and its processes. However, none of these lawsuits are yet resolved, leaving significant uncertainty regarding the implementation and constitutionality of the program. Biopharmaceutical companies have continued to raise concerns that the federally established MFP in Medicare will lead to less investment in novel or improved medicines and limited meaningful change to patient out-of-pocket costs.

Manufacturers with a drug selected for negotiation have until October 1, 2023 to enter into an agreement with CMS accepting the negotiation terms. Those that chose not to enter an agreement face a steep financial penalty. If a manufacturer chooses not to accept CMS’s final MFP offer, they will be subject to an excise tax of up to 95 percent of the US sales of the product – or the manufacturer could withdraw all of their products from the Medicare and Medicaid programs instead of paying the tax. This agreement deadline will apply to each company with a drug on the selected list, including those with pending lawsuits against HHS and the IRA’s authorities.

CMS requires any drug data to be submitted by October 2, 2023, though it is unclear how the data will be used to set the price. The agency additionally announced ten patient-focused listening sessions this fall that will be open to the public, one for each drug, beginning October 30, 2023. CMS will provide an initial MFP offer and justification for such offer to companies by February 1, 2024. This kicks off a process for providing counteroffers from manufacturers to CMS, which CMS is not required to take.

The MFP negotiation process will end on August 1, 2024, with the final MFP published by September 1, 2024. The MFP set for these drugs will take effect in 2026. Further, CMS will select up to an additional 15 Part D drugs for MFP setting in 2027, up to an additional 15 Part B or Part D drugs in 2028, and up to an additional 20 Part B or Part D drugs in 2029 and each subsequent year.

For more information, please contact any of the authors.