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Understanding the Inflation Reduction Act: Drug Price Negotiation

In this second of a series, we explore the details known so far about Medicare drug price negotiation resulting from the implementation of the Inflation Reduction Act. The Centers for Medicare and Medicaid Services (CMS) has gradually been releasing guidance for manufacturers on the negotiation process. As this information has been released, Merck and the U.S. Chamber of Commerce have sued CMS to stop the process, saying CMS has overstepped its authority, even though the IRA is now statute. These suits could delay the implementation of the negotiation program beyond the dates we list here.

Two major points to keep in mind are that the first round of negotiated rates will not be effective until January 1, 2026, and these rates will apply only to a limited number of drugs (as of May 5, 2023, up to ten) under the prescription drug program – Part D. Negotiated rates for Part B drugs (those that are administered by a healthcare professional) will not be effective until 2027 and for a limited number of products (up to 15 as of this writing).

While the ability for Medicare to negotiate drug pricing is precedent setting, the way that it is shaping up is not as remarkable. In Part D and Part C – Medicare Managed Care, in which many plans include prescription benefits – these plans already negotiate pricing with Pharmacy Benefit Managers (PBMs and payers) for the drugs offered on their formularies. So, this concept will not be entirely new to biopharmaceutical manufacturers.

The new experience for manufacturers will be negotiation with CMS directly, rather than with the PDP contractors (payers/PBMs), with a published listing of Medicare’s criteria. CMS intends to negotiate the price for a “qualifying single source drug,” meaning that the product is not a reference drug for a generic or biosimilar product, and the product itself is not generic. In addition, a drug will qualify only if Medicare Part D and Part B combined expenditures exceed $200 million during the 12-month period beginning June 1, 2022. Each qualifying drug will also need to be on the market at least seven years and each biological product for 11 years, as of September 1, 2023. Even if these criteria are met, CMS will not consider a product qualified for negotiation if it is an orphan drug, a plasma-derived product, or a small biotech drug; CMS also will remove a biologic from consideration if biosimilars (are anticipated to) enter the market. CMS intends to issue the list of the ten Part D drugs by September 1, 2023, commencing the negotiation process.

We believe manufacturers can get ahead of this negotiation process by performing calculations based on sales to Part C and D plans and understanding the net price for the product paid by Medicare to the plans. EVERSANA is uniquely positioned to help manufacturers perform the necessary calculations and anticipate potential negotiations as the September date draws closer. Once the drugs are announced, EVERSANA can help manufacturers conduct predictive calculations to assist in the negotiation process. Please contact us to learn how we can help you.


Mike has over 25 years of experience in marketing and sales, market access, channel design, sales training and sales management, and has been involved in over 25 product launches in sales, marketing or consulting…

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