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The Problem of Limited-Supply Agreements for Medicare Price Negotiation

A recent JAMA Viewpoint article discusses how limited-supply agreements between brand name and generic drug makers could impact Medicare price negotiation under the Inflation Reduction Act (IRA). These agreements allow brand manufacturers to maintain some market exclusivity by limiting the supply of generic competitors.


The article suggests these deals may increase as the Centers for Medicare and Medicaid Services (CMS) implements the IRA's price negotiation provisions. From a business perspective, it's understandable why brand manufacturers might find limited-supply agreements preferable to having their drugs subject to Medicare negotiation. Maintaining even partial exclusivity is likely better for revenue than triggering government-dictated price reductions.

However, policymakers and patients are increasingly concerned that these deals keep prices high despite generic availability. The use of limited supply agreements could also produce unintended consequences.  Balancing sometimes conflicting public health interests and business goals will require thoughtful consideration by manufacturers and policy-makers alike

For manufacturers, these deals may draw lawsuits, backlash from patient advocacy groups, and demands for profit clawbacks if perceived as artificially inflating costs. The ability, or lack thereof, to enter into limited supply agreements could influence launch prices of new drugs. Leveraging these deals later to retain exclusivity and avoid price negotiation could encourage manufacturers to be more aggressive in establishing launch prices. 

However, manufacturers should be cautious about pricing drugs too aggressively out of the gate. Excessive launch prices - coupled with later reliance on limited supply deals to avoid reductions - may increase scrutiny from policymakers and the public. Savvy manufacturers will likely take a balanced approach - pricing new drugs reasonably at launch while keeping limited supply agreements in reserve as an option if negotiation is triggered down the road.

For Medicare, overly restricting these agreements could discourage investment in new drugs. In the extreme, vital medications might cease being available to beneficiaries. Outright bans on these kinds of agreements could also have downstream consequences. For instance, a total ban on these kinds of agreements could result in manufacturers abandoning their work in certain disease states if they are deemed to be financially unsustainable, in turn leaving beneficiaries with limited access to treatment.

As with any complex policy issue, there are likely trade-offs and second order effects that both sides should consider. A flexible, adaptive approach focused on the shared goals of patient access and program sustainability may be required as real-world experience with limited supply agreements accumulates.

In the end, all parties share an interest in ensuring patient access to vital medicines. This requires balancing policy goals, business realities, and public expectations. With thoughtful engagement on all sides, workable solutions can likely be found to perceived abuses without unduly limiting manufacturers' ability to recoup investments in innovation. Open dialogue and good faith efforts to understand differing perspectives will be key.

Link to full article: 

 https://jamanetwork.com/journals/jama/fullarticle/2809761?resultClick=1

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