CMS has chosen to take a largely “mechanical” approach to selection of the products for negotiation. CMS simply selected the eligible products with the greatest Medicare Part D gross spend over the prior year, only excluding those that have an existing biosimilar competition (i.e., Humira, Revlimid and Lantus Solostar) or that are ineligible for negotiation due to insufficient time on the market (Ozempic and Trulicity, both of which are expected to become eligible for negotiation in 2025 and 2026, respectively). Notably, CMS has appeared to eschew any other assessment criteria beyond total Medicare spend in the prior year, not considering either history of price increases or total potential lifetime savings.
There were a few modest surprises on the list. Some commentators were surprised CMS selected for 2026 agents, including Januvia, Stelara and Novo Nordisk’s insulin despite the strong potential that each will face generic/biosimilar competition and pricing decline shortly, even in the absence of negotiation, rather than selecting agents with greater remaining patent protection. If generics/biosimilars for these drugs enter the market ahead of negotiations, these products may be excluded from the process. Additionally, CMS’ decision to aggregate multiple Novo Nordisk insulin products (NovoLog and Fiasp) was not widely anticipated.
One key takeaway from the selected list is that discounts are likely to be substantial, but to what extent remains unknown. Four of the 10 drugs (Enbrel, Januvia, NovoLog, and Stelara) selected will have been on the market for more than 16 years at the time of MFP implementation; for those therapies, the minimum discount will be 60% versus the average net price compared to just 25% for therapies launched more recently.
Biopharma manufacturers have continued to respond aggressively to the IRA, with this announcement representing the first major step in the process
Prior to the announcement, six of the affected biopharmaceutical manufacturers (Astellas, AstraZeneca, Boehringer Ingelheim, Bristol Myers Squibb, Johnson & Johnson and Merck) had filed lawsuits against CMS; Novartis filed suit soon after. Astellas had filed suit in July; however, when its Pfizer-partnered Xtandi was not included for negotiation (as was expected), it withdrew the lawsuit. These lawsuits argue that the legislation infringes on the First Amendment (by compelling speech), Fifth Amendment (by taking property without due process and fair compensation) and, in some cases, the Eighth Amendment (by imposing excessive fines).
Separately, AstraZeneca claims the IRA directly counteracts provisions set forth in the Orphan Drug Act, which may disincentivize development of critical medications for patients with rare diseases. Additionally, pharma executives and lobbyists have displayed harsh criticism of the legislation and more lawsuits are likely to ensue.
On Oct. 1, manufacturers must agree to negotiate or they will face substantial penalties. Despite manufacturer objection, without remediation from the court, pharmas are expected to agree to negotiation. Any company that does not negotiate has the option of either (1) removing all products, not just the product subject to negotiation, from all federal health programs including Medicare Parts B and D or (2) face an escalating excise tax on the negotiated product that will reach 95% of the product’s sale price within nine months. If manufacturers agree to negotiation but do not provide the required information to support CMS assessment or otherwise fail to comply with the negotiation process, they are subject to fines of $1 million per day.
This negotiation will continue throughout the fall and into 2024, with the negotiated price of these 10 drugs published on Sept. 1, 2024 (see Figure 4). The negotiated prices for these drugs will go into effect in 2026.
