Inflation Reduction Act: CMS Releases New “Medicare Drug Price Negotiation Program” Guidance as Industry Lawsuits Mount

In the past two weeks, the Centers for Medicare & Medicaid Services (CMS) unveiled important details regarding implementation of the Medicare Drug Price Negotiation Program (Negotiation Program) under the Inflation Reduction Act (IRA). Specifically, CMS released (i) “Revised Guidance” for the Negotiation Program; (ii) the Negotiation Program Agreement (Agreement), which CMS and pharmaceutical manufacturers will use to establish price caps for Selected Drugs beginning in 2026; and (iii) instructions for “effectuating the Agreement” (Instructions). Although touted by CMS as a means to address the litigation allegations, the Revised Guidance seems to do little to alter the parties’ litigation positions or to change the analysis of the merits of these cases.

As discussed in prior updates, the IRA’s Negotiation Program provisions allow CMS to set a maximum fair price (MFP) for certain "high expenditure,” single-source drugs covered under Medicare Part B and Part D (Selected Drugs).

Revised Guidance

CMS notes that it received more than 7,500 comment letters from a variety of stakeholders regarding the Medicare Drug Price Negotiation Program: Initial Memorandum guidance that it issued earlier this year, but CMS adds that it responded to only “significant” comments. This appears to be an admission that the agency did not meet the requirements that apply to a notice and comment regulation, which may add to criticisms that the agency’s guidance was issued in a procedurally improper manner. In the Revised Guidance, CMS states that it will solicit comments through program guidance to implement the Negotiation Program in 2027 and 2028 and will issue a proposed rule, with notice and comment opportunity, for implementation year 2029. Under the IRA, the Negotiation Program also will include drugs covered under Part B beginning in implementation year 2028.

Some of the updates to the Revised Guidance seek to address the lawsuits that multiple private parties recently filed challenging the constitutionality of the Negotiation Program. Namely, the Revised Guidance attempts to argue that the program is a “voluntary” “negotiation.” It does so by including additional guidance regarding how a manufacturer perpetually can terminate its participation from the Medicare and Medicaid programs. In addition, in a lengthy comment and response discussion, CMS takes the position that its approach to implementation of the Negotiation Program does not violate the Administrative Procedure Act or the Medicare statute.

CMS also states in the Revised Guidance that while it issued some of the initial guidance as “final” guidance, the agency received comments on those provisions and made changes to the initial guidance based on those comments. These statements raise questions about the asserted “final” nature of the prior guidance as well as additional questions and concerns about CMS’s process to date in implementing the Negotiation Program. CMS fails to explain why, after this round of guidance, it was unable to proceed by regulation. In addition, the Revised Guidance does not address the lack of guiding principles or factors in the IRA that limit how low CMS can go in establishing a MFP, a major allegation in the litigation. In general, the key structures and outline of the Negotiation Program remains unchanged under the Revised Guidance.

Key provisions in the Revised Guidance:

1. Orphan Drug Exclusion. CMS states that it has “clarified ... that a drug that has designations from the U.S. Food and Drug Administration (FDA) 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) and that CMS will only consider active designations and active approvals when evaluating a drug for the Orphan Drug Exclusion.” In a small victory for manufacturers of orphan drugs, CMS states that withdrawn orphan designations or withdrawn approvals will not disqualify a drug from the Orphan Drug Exclusion.
   
   Some commenters asserted a reading of the statute that would start the “clock” for when a drug was approved for a second orphan (or nonorphan) indication. In the Revised Guidance, CMS explicitly rejects this position, stating that it “does not have the statutory authority to change the starting date from which qualifying single source drug status is determined.”
2. Plasma-Derived Drug Exclusion. In the Revised Guidance, CMS states that some commenters sought guidance regarding which products are eligible for the statute’s exclusion for plasma-derived products. CMS responded that the agency will look to the FDA, including its online FDA Approved Blood Products website and the FDA Online Label Repository, and will consult with FDA as needed. Importantly, CMS further responded that “cellular and gene therapies are not categorically ineligible for the Plasma-Derived Product Exclusion” and will be evaluated similar to other biological products. CMS’s approach, which seems to devalue stakeholder input, raises both substantive and procedural concerns.
3. New Formulations. The Revised Guidance addresses commenters that under the plain language of the statute, different new drug applications (NDAs) and biologics license applications (BLAs) must be treated as separate single-source drugs. In response to these comments, CMS states that “[c]ontrary to the views of some commenters, section 1192(d)(3)(B) refers to the aggregation of data ‘across dosage forms and strengths of the drug, including new formulations of the drug,’ thereby necessarily establishing that the statutory negotiation procedures apply more broadly than to a distinct NDA or BLA.” CMS also states that this approach will reduce so-called “product hopping” or shifting use of products away from those with an MFP to those without an MFP. In making these arguments, CMS fails to even consider the possibility, in keeping with the plain language of the statute, that Congress did intend to limit the negotiation by NDAs and BLAs but wanted CMS to consider broader data in the price-setting process.
4. Fixed Combination Drugs. CMS states that multiple commenters expressed support for CMS’s interpretation of fixed-combination drugs. CMS further states that it “appreciates[s] commenters’ support for [the agency’s] understanding of the statutory language.” The Revised Guidance does not make any changes to the previously issued fixed-combination drug guidance. Accordingly, under the Revised Guidance, a fixed-combination drug with more than one active ingredient will be treated as a separate single-source drug distinct from a drug with only one of those active ingredients. CMS’s position here is in tension with its position that disregards the significance of separate NDAs and BLAs.

Additional Notable Provisions

5. Public Explanation of MFP. CMS states that it will publish a public explanation of the MFP for initial price applicability year 2026 for each Selected Drug by March 1, 2025, which will include redacted information regarding the data received, exchange of offers and counteroffers, and the negotiation meetings, if applicable. With regard to the redaction point, CMS elsewhere contends that material supplied to it is disclosable. This raises significant trade secret protection issues.
6. Data Facilitator. CMS recognizes certain challenges in effectuating the MFP. For example, CMS states that it intends to engage a “Medicare transaction facilitator” (MFT) to facilitate the exchange of data among entities to help verify eligibility and effectuate access to the MFP through a retrospective refund model. It is unclear how this MFT will affect manufacturers’ obligation to ensure the MFP is provided. Indeed, several questions remain, including how these media would interact with 340B discount obligations, even as the Revised Guidance indicates that CMS may be considering some of these issues.
7. Duplicate Discounts. CMS continues to lack a solution to prevent duplicate discounts stemming from the provision of the MFP. The Revised Guidance states that “CMS understands the value of the identification of 340B units for the Negotiation Program and the Part D Drug Inflation Rebate Program” and adds that “CMS intends to examine options with respect to identification of 340B units and intends to work with HRSA [Health Resources and Services Administration] accordingly.” The Revised Guidance suggests that CMS is already seeking solutions, stating, “[a]t this time, CMS is examining options with respect to identification of 340B units in consultation with HRSA and interested parties.” This remains a critical issue. Without a solution to this issue, manufacturers likely will face significant challenges in identifying and preventing statutorily prohibited duplicate discounts, similar to the issues manufacturers already face in the 340B Drug Pricing Program.

Agreement and Instructions

The Agreement and Instructions set forth CMS and manufacturer responsibilities and general provisions for the MFP negotiation period (and renegotiation period, as applicable) for Selected Drugs for the initial price applicability year, some of which are highlighted below. In general, the Agreement requires that the manufacturer agree to engage in the negotiation process and to provide the resulting MFP.

a. Manufacturer Responsibilities

Within five days following CMS’s publication of the Selected Drugs List for the initial price applicability year 2026 (due September 1, 2023), participating manufacturers must submit for CMS approval the name, title, and contact information of each person legally authorized to execute the Agreement (Authorized Representative) via the CMS Health Plan Management System (CMS HPMS).

Once approved for signatory access, the Authorized Representative may execute the Agreement in CMS’s HPMS, binding the manufacturer to the Agreement’s terms and conditions, including:

• providing requested information (including related to nonfederal average manufacturer price and rebates) for each Selected Drug “in a form and manner specified by CMS”
• if CMS and the manufacturer “agree” on a price, executing an addendum setting forth the MFP negotiated (and renegotiated, as applicable) for each Selected Drug (Addendum or Addenda)¹
• complying with “requirements determined by CMS to be necessary” for administering and monitoring compliance with the Negotiation Program; in a further indication of what critics contend is an involuntary mechanism, CMS fails to specify how such “compliance” will be monitored, seeming to require manufacturers to commit to unstated compliance obligations

If the Authorized Representative changes, manufacturers must notify CMS via email to IRARebateandNegotiation@cms.hhs.gov.

b. General Provisions

Other key provisions:

• Manufacturer information deemed by CMS to be proprietary² will be used only by CMS and the Comptroller General of the United States to carry out the Negotiation Program.
• The termination date is the earlier of the first day that the Selected Drug is no longer a Selected Drug or the date that the Agreement is terminated by either party.
• Participating manufacturers may be subject to civil monetary penalties and an excise “tax,”³ as applicable, for failure to meet the requirements of the Negotiation Program.