Medicare Price Negotiation: Special Treatment For ‘Novel Technologies’ On PhRMA’s Advocacy Agenda
Executive Summary
Novartis CEO Vasant Narasimhan, PhRMA's incoming board chair, says in an interview that the brand drug association has a slate of issues to pursue as it works to shape the implementation of the Medicare price negotiation program in the name of preserving innovation.
Medicare should allow for limits on the discounts required for innovative drugs subject to price negotiation as it develops the rules around implementing the program, Novartis Chairman and CEO Vasant Narasimhan said in an interview with the Pink Sheet.
“Are there any protections that [the Centers for Medicare and Medicaid Services] would consider for novel technologies, novel drugs … to ensure those drugs may not be subject to onerous discounts that would disincentivize these very novel innovations?” he asked. For example, “you could imagine for RNA therapeutics or novel technologies like that, could they be held at a 25% discount level for a certain period of time?”
The law sets minimum discounts for products based on how long it has been since they were approved, and CMS is free to seek deeper discounts if it believes they are warranted. For drugs nine to 12 years post-approval, the minimum discount is 25%, for those 12-16 years it’s 35% and for those 16 years or more post approval, the minimum discount is 60%. The 35% minimum discount for drugs 12-16 years old will become effective in 2030. Until then, drugs up to 16 years old will be subject to the 25% minimum discount.
Vas Narasimhan
Under Narasimhan’s example, innovative drugs would be subject to the lowest possible discount for a set period regardless of their age.
Narasimhan, who is also the new PhRMA board chairman, discussed a range of policies that the association plans to pursue during the regulatory implementation process for the negotiation program that it hopes could blunt the impact of price controls.
CMS has expressed willingness to involve stakeholders in the implementation process but there is not much time to do so. The list of drugs subject to the first round of negotiation is due to be released in September. (Also see "Medicare Price Negotiation: Sponsors Will Have A Say, But Likely Not Sway As Timetable Comes Into Focus" - Pink Sheet, 11 Jan, 2023.)
Longer-term, PhRMA will also pursue legislation to change of the Inflation Reduction Act requirement that negotiated prices would be implemented for small molecule drugs at nine years following approval to 13 years, which is the period allowed for biologics, Narasimhan said. There is always the concern that reopening a contentious law could lead to even worse outcomes. But that issue is a high priority one for industry, he emphasized.
‘Improving’ Law Instead Of Throwing Whole Thing Out
Narasimhan explained PhRMA’s focus on “improving” the law rather than supporting a wholesale repeal of the drug pricing provisions of the IRA is a pragmatic one. Senate Republicans recently introduced legislation that would repeal all of the provisions. But that would mean policies that the industry strongly supports, like the $2,000 cap on out-of-pocket spending in Medicare Part D, would also get thrown out.
“We believe at this moment in time that the real focus of our efforts should be on trying to improve the legislation so it doesn’t adversely impact innovation, particularly the 9/13 [situation], which is much more of how we move the NDA side of the legislation to a timeline that is much more sensible and realistic,” he said.
“Medicines in various categories – cardiovascular drugs, which take a long time to get taken up; cancer drugs, where you have to start late line then move into the adjuvant setting; rare disease drugs, where you’re often starting with a single rare disease and then adding rare diseases over the entire life of the medicine – in all of these scenarios now we’ve created a disincentive … for the Medicare population” with the nine-year timeline, he argued.
Instead, “to have all therapeutics at 13 years … is a reasonable timeline overall.” He also suggested the change could be made without significantly decreasing the law’s savings to Medicare. (Also see "Don’t Look Up? Congress Can’t Ignore Risk To Small Molecule Drugs In Pricing Bill, Investors Warn" - Pink Sheet, 3 Aug, 2022.)
Narasimhan noted there is a “lot of effort” by individual companies and PhRMA to “educate” CMS on “some of the elements that need to be considered in how the law is implemented.” He classified those elements in three general areas.
The first has to do with how drugs are selected for negotiation. One issue is whether CMS will use gross versus net spending in Medicare to select products that represent high levels of spending, one of the elements that goes into the process.
CMS recently indicated it will use gross spending before rebates in Part D, but that approach needs to be finalized. (Also see "Medicare Will Pick Drugs For Negotiation Based On Gross Sales, Disadvantaging Highly-Rebated Products" - Pink Sheet, 12 Jan, 2023.)
A related question surrounding the drug selection process is “how the orphan provisions in the bill are interpreted,” Narasimhan said. “We would argue there shouldn’t be a penalty for having multiple orphan indications or having orphan indications alongside a more common indication. But those are things that need to get clarified.”
The law exempts orphan drugs from negotiation but only those with a single indication. (Also see "IRA Effect: Alnylam Acting ‘Rationally’ In Halting Second Orphan Indication For Amvuttra – Analysts" - Pink Sheet, 7 Nov, 2022.)
“We would argue there shouldn’t be a [pricing] penalty for having multiple orphan indications or having orphan indications alongside a more common indication. But those are things that need to get clarified.”
A second category of issues covers the information that CMS uses to set a “maximum fair price” in the negotiation process, he continued. The law requires manufacturers to provide CMS with several pieces of information on selected drugs, including research and development expenses, cost of production, federal financial support for discovery and development, data on pending and approved patents and exclusivity and revenue and sales volume.
Industry is interested in more clarity about “the kind of data they’re requesting, how that process is ultimately going to work, [and] how confidentiality is going to be managed through exchanging information in those … different areas,” he pointed out.
Concerns over confidentiality breaches in the negotiation process could give rise to litigation, according to some regulatory attorneys. (Also see "Pricing Disclosure Demands During Medicare Negotiation Process May Be Fodder For Lawsuits" - Pink Sheet, 6 Feb, 2023.)
Negotiated Discounts Should Be Collected Retrospectively, PhRMA Believes
A third category of questions pertains to how drugs with negotiated prices fit into the current rebate-driven formulary structure in Medicare Part D, Narasimhan pointed out. For such drugs, “what happens then on the formulary position if you’re no longer paying rebates? Does that penalize you?”
Another key question is how CMS plans to collect the discount on negotiated prices, he said. “We think [collection] should be retrospective, not prospective. Because if you do it prospectively, you get patients … who shouldn’t be in the program ultimately getting a discount if you’re not checking on whether they should benefit. So, there are a lot of things to be worked out,” he continued.
Bigger picture, industry will push CMS to establish clear and consistent standards for how it comes up with a maximum fair price and assurances that those standards won’t allow a lot of variation when they are applied by future Administrations.
The wide range of discounts that might be applied – 25% to 95% (using the excise tax penalty for non-compliance with the negotiation process as the high end discount) – undermines R&D investment planning, he argued.
Ceiling On Discounts In Certain Situations
“Investment decision making will have to assume the worst-case scenario and that is something we’re trying to impress upon the relevant decisions makers,” Narasimhan emphasized. “If we don’t have certainty that we’re not going to face 95% discounts in year nine or year 13, we have to assume that’s the case when we look at our next R&D project.”
So “it’s really important that whatever the system is, it’s clarified so we have certainty and then we can assess which project makes sense and which projects don’t make sense, given the rulemaking. If there’s always this variability – one [CMS] team might say, ‘this is a 25% discount,’ but the next team says, ‘well this is going to be an 80% discount’ – that makes it very difficult then to make R&D decisions.”
The solution might be to set a ceiling on discounts, he suggested. “We think that in certain instances, CMS could articulate that there will be a limit to discounts … and how those will evolve over time … and then we could factor that into our decision making. Right now, in the absence of the rulemaking around this you have anywhere from 25% to 95%, which is a pretty wide range.”