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Price Negotiation Poses Challenges for CMS

I just finished reading Anna Kaltenboeck’s article in Health Affairs titled “CMS Threads the needle on a Tricky Question: What is a Drug?" Kaltenboeck raises a number of potentially thorny issues that, if not addressed fully, could have negative implications on CMS’s drug price negotiation process.



I was at CMS in the early 2000’s and was involved in maturing the Average Sales Price (ASP) program under Part B. We spent several years drafting, reviewing, re-drafting and proposing and re-re-drafting policies that were aimed at filling in the blanks in the ASP system. We took a thoughtful and meticulous approach to questions such as “How should a lagged discount be reflected in ASP?”, “What is a bona-fide service fee?”, and “How should ASP reflect ‘intentional overfill’?”

Here are three things that I took away from Kaltenboeck’s article:

1. Rapid Implementation Brings Seen and Unforseen Challenges: The Inflation Reduction Act (IRA) requires the Centers for Medicare and Medicaid Services (CMS) to implement significant changes to how Medicare pays for prescription drugs on a tight timeline. Kaltenboeck highlights the challenges faced by CMS in establishing the required infrastructure and developing rules to effectively apply the new law within a short period.

CMS typically follows a notice-and-comment rulemaking process, which involves soliciting public feedback and allowing time for stakeholders to comment on proposed rules. However, due to the urgency of the IRA's implementation, the law provides an abbreviated process for some provisions in the initial years. This streamlined approach aims to expedite the implementation process but can also limit the amount of public input and scrutiny.

This isn’t the first time that CMS has been given, and has used, the authority to establish a significant program outside of notice and comment rulemaking. But this program highlights some logistical problems such as: a compressed timeline with limited room for thorough planning; pressure on CMS to develop infrastructure -- including processes for negotiation and systems for reimbursement; limits on legal challenges to CMS's interpretation of the law that are meant to avoid lengthy legal battles but could lead to the lack of a clear process to address contentious issues or uncertainties in the rules; and the need for CMS to strike a delicate balance between achieving savings promptly, fairly and transparently.

The drug price negotiation process is a dramatic change in the way that CMS pays for prescription drugs and has the potential to impact millions of American seniors. CMS has to “get it right” or risk the well-being of the American’s it is meant to protect.

2. Defining a Drug for Negotiation Could Have Unintended Consequences: The central issue revolves around the definition of a drug eligible for negotiation. CMS's interpretation focuses on the active ingredient or moiety, which affects how different formulations and versions of the same drug are considered under the negotiation program. Variations in formulations may pose challenges to CMS when faced with the need to determine whether different versions of a drug marketed under various New Drug Applications (NDAs) or Biologics License Applications (BLAs) should be classified as one qualified single source drug (QSSD) or separate entities

This could also have unintentional consequences on pharmaceutical manufacturers' behavior. Treating each NDA or BLA as separate entities may encourage manufacturers to accelerate the development of new versions to shift patients from older formulations to newer ones thus avoiding the negotiation process. Further by treating each NDA or BLA separately, a generic or biosimilar version of one formulation could trigger the release of other formulations from the negotiation program. Delaying generic or biosimilar competition could hinder access to more affordable alternatives and result in CMS missing some of the organic savings that accrue from competitive market forces.

3. Setting Standards for Future Rulemaking: Kaltenboeck acknowledges that CMS's current interpretation of a drug for negotiation purposes sets a standard for future notice-and-comment rulemaking. As the CMS moves forward with implementing the negotiation program, establishing consistent and effective rules becomes crucial for long-term success and impact.

As CMS proceeds with regular notice-and-comment rulemaking in subsequent years, it will use this initial interpretation as a starting point and refine or expand upon it based on experience and feedback. As CMS formulates future rules and guidelines for drug price negotiation, it must ensure that the process is transparent, providing clear criteria for identifying negotiation-eligible drugs along with other aspects of the program. This includes addressing concerns about evergreening strategies and other tactics that may undermine the negotiation program's goals.

A key challenge in future rulemaking will be striking the right balance between achieving cost savings for Medicare and its beneficiaries and encouraging pharmaceutical innovation. While cost containment is crucial, rules must not stifle innovation and the development of new and improved medications that can have a significant impact on patient care.

The pharmaceutical industry is dynamic, and new strategies may emerge over time in response to the negotiation program. Rules should be adaptable and responsive to evolving market dynamics.
Stakeholder concerns may not only come from the pharmaceutical industry, but from patient groups, provider groups and perhaps other payers. Therefore, it is crucial to ensure that future rulemaking  continues to incorporate public input and feedback from all stakeholders. Input from these groups can help CMS refine its rules and ensure they align with the needs and interests of the healthcare system and the patients it serves.

The process of developing and maturing the ASP system should serve as a model for CMS as they proceed with implementing the drug price negotiation program. Taking a methodical and thoughtful approach will lead to a system that reflects stakeholder concerns, protects Medicare beneficiaries and allows CMS to be prudent fiduciaries of the Part B trust fund.





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