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20 March 20236 minute read

Centers for Medicare and Medicaid Services issues initial guidance on the implementation of the Maximum Fair Price program as defined in the Inflation Reduction Act

On March 15, 2023, the Centers for Medicare and Medicaid Services (CMS) issued draft guidance to biopharma manufacturers on the section of the Inflation Reduction Act that will allow the government to set a maximum fair price for 10 Medicare Part D (typically pharmacy dispensed) drugs starting in 2026.

While segments of this initial guidance document are open to comment, a significant portion is issued as final. One notable final portion is the guidance focused on the process CMS will use to select the 10 Part D drugs that will be selected in September 2023 to have a maximum fair price (MFP) established in 2026. The agency notes that the short timelines for implementation and the design of the IRA permit CMS to implement quicky and without public comment. However, comments submitted on other portions of this March 15, 2023 guidance submitted to CMS by April 14, 2023 may be considered.

CMS says that for purposes of selecting the initial 50 Part D drugs from which the 10 drugs for an MFP will be chosen, sales of all drugs with the same moiety and held by the same company will be aggregated and considered as one drug for the purpose of identifying the top spending drugs in Medicare Part D. The “same” company is defined as the holder of the National Drug Code (NDC) number.

The NDC is a unique number that identifies each drug and is registered to a company that has listed that drug for commercial marketing. This means that if a biopharma company has several different drugs or drug forms with the same moiety – including, for example, an extended-release version or oral and subcutaneous version made of the same molecule – the sales of those drugs will be aggregated and considered as one drug by CMS when identifying the biggest drugs in Medicare Part D.

This guidance will also be applied to fixed dose combination drugs that have the same combination of two or more moieties, even if they have different uses, forms or routes of administration. CMS will not aggregate drugs that don’t have all the moieties in common; for example, the agency would not combine a drug with molecule A and another drug with a combination of molecules A and B. When there are multiple NDCs within one drug “group,” the agency will choose the approval date of the oldest approved NDC in determining if the drug is eligible for negotiation (7 years after market approval for small molecules and 11 years for large molecules).

As anticipated, CMS will establish the ceiling prices as the lower of the discounted price to Part D plans (plans will submit data) or the percentage discount off the non-Federal Average Manufacturer Price as defined in the IRA. The agency seeks comment on the process it will use to establish an MFP for each dose and form of the drug within the group selected.

CMS also discusses at length the data elements that the agency may consider to establish the MFP, including the research and development (R&D) costs for the drug. It asks for the R&D costs that have been “recouped” as measured by the company global sales for that drug. CMS will only consider R&D costs of the current NDC holder, not expenditures by other entities that may have engaged in early development and then sold rights to the drug to the current NDC holder.

CMS also describes how it will consider evidence of comparative efficacy of the drug selected for MFP relative to alternatives and evidence of unmet need. Notably, CMS states that it will only consider other Part B or D drugs with the same indication as treatment alternatives, not other types of health intervention such as surgery or intensive care.

The agency indicates it will not use a value metric, such as a Quality Adjusted Life Year (QALY), in a way that discriminates against a particular group, such as the aged or disabled. However, CMS does indicate that it may consider evidence such as analysis that integrates the QALY into its value calculation. In reality, the ceiling price as established in the law is the upper maximum, so even if there is evidence of superior comparative efficacy or unmet need, the agency will not allow an MFP above the IRA ceiling.

Furthermore, CMS describes the process that will be used to assess whether biosimilar competition is imminent. The guidance indicates that CMS considers “imminent” to mean that there is a high likelihood that the biosimilar will be marketed by September 2025. Such evaluation would include demonstrating that there are no patents, either in existence or under consideration, that would prohibit a biosimilar entrant and there are no active patent disputes on the drug in question. To demonstrate the likelihood of biosimilar entry, the requestor can show proof of an agreement with the originator allowing biosimilar entry or demonstration that a court has declared that the patent does not prevent entry.

Other areas open to comment

Other areas that are open to public comment include the data that is required for the small biotech exemption in 2026. CMS has already issued initial guidance further describing data elements that interested manufacturers would need to submit and the system for submission. Second, CMS is requesting input on the data requirements, the approach to confidentiality, how biopharma companies certify the NDCs that CMS selects, and on their direction that manufacturers destroy information exchanged between them and the agency within 30 days once it is established that a drug does not qualify for MFP selection.

CMS describes how the MFP will be published and the requirement for manufacturers to make the MFP available to all individuals in pharmacies, mail order and other dispensing entities. The manufacturer must make the MFP available to 340B entities, which may purchase at that price if it is lower than the 340B price. The guidance indicates that manufacturers would be permitted to rebate back the difference between the MFP and the offered price if they find an eligible entity was mistakenly not given access to the MFP. There will be audit and oversight established by the agency.

Moving forward

There are many other elements of the guidance not covered in this summary. We anticipate the MFP process will impose a sizeable data collection, submission and oversight burden on many biopharma manufacturers. As CMS is implementing rapidly, biopharma companies may also wish to expand their capacity to comply with the law. DLA Piper’s regulatory team includes lawyers and experts in the compliance process, interpreting regulation and policy to provide guidance though the implementation of the IRA.