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Medicare drug price negotiation has arrived. Now what?


Proponents hailed yesterday's announcement of the first 10 drugs subject to Medicare "maximum fair price" starting in 2026 as ushering in an era of lower drug prices and a political victory over pharma. Critics said it is price controls masquerading as negotiation and would smother innovation in one of the most innovative industries in the U.S.

The Rubicon of Medicare drug price negotiation has been crossed.

In an announcement early yesterday morning, three days before the Sept. 1 deadline, the Department of Health and Human Services (HHS) announced the first 10 drugs subject to a Medicare “maximum fair price” starting in 2026. In theory, drugmakers can opt out of the negotiation but that would trigger a large excise tax, starting at 65% of the product’s sales, or require the drugmaker to stop supplying all of their drugs to the Medicare and Medicaid program.

LIS = Low income subsidy

Source: HHS Assistant Secretary for Planning and Evaluation Fact Sheet, Aug. 29, 2023

LIS = Low income subsidy

Source: HHS Assistant Secretary for Planning and Evaluation Fact Sheet, Aug. 29, 2023

The announcement stirred up a flurry of news coverage and analysis and battling commentary on social media.

“This is now an opportunity for Democrats to campaign on their historic political victory over pharma,” Larry Levitt, executive vice president for health policy, wrote on X, formerly known as Twitter.

Jo Ann Jenkins, CEO of AARP

Jo Ann Jenkins, CEO of AARP

In an X post, Jo Ann Jenkins, CEO or AARP, described the publication of the selected drugs as an “important first step toward allowing Medicare to use its bargaining power to negotiate lower drug prices and bring relief to millions of Americans who rely on these life-sustaining medications.”

Industry groups and Republicans countered with assertions that Medicare price negotiation would discourage innovation and were actually government-imposed price controls.

“Government price controls decimate the innovation ecosystem that continues advancing global human health and which, most recently, discovered a cure for hepatitis C, vaccines against cervical cancer, the first-ever treatment for Alzheimer’s, and vaccines and treatments against new threats such as COVID-19,” said Dean J. Paranicas, president and CEO of the HealthCare Institute of New Jersey, a trade association for pharmaceutical and medical technology companies in the state.

Dean Paranicas, president and CEO of the Healthcare Institute of New Jersey

Dean Paranicas, president and CEO of the Healthcare Institute of New Jersey

Politico quoted Joel White, whom it identified as a Republican healthcare strategist, as saying that price control is a “huge departure from where we have been as a country.” White added that that “it gets politicians and bureaucrats right into your medicine cabinet.”

The Pharmaceutical Research and Manufacturers of America (PhRMA) and individual drugmakers have filed lawsuits to block Medicare drug pricing from going into effect, so there could be legal obstacles that might delay or, if the plaintiffs prevail,prevent the negotiated prices from ever going into effect.

Whether the Medicare price negotiation will dampen innovation in the drug industry is an open, debated question. Those in favor of it point to a Congressional Budget Office (CBO) estimate that Inflation Reduction Act, which has other provisions that affect drug prices, will reduce the number of drugs coming to market over the next 30 years by 1%, or just by 13 out of 1,300.

Medicare price negotiation is accumulative. The first 10 drugs subject to price negotiation, all them covered by Medicare Part D, are scheduled to be followed by another 15 Part D drugs in 2027, then 15 Part D and Part B drugs in 2028, followed by 20 Part D and B drugs in 2029 and in later years

According to the Kaiser Family Foundation, CBO has estimated that Medicare price negotiation, by lowering the cost of drugs to the program, will reduce the budget deficit by $25 billion in 2031 with Part D spending reduced by $14 billion and Part B spending by $9 billion.

HHS picked the 10 drugs from among the 50 “negotiation-eligible” Part D drugs with the highest total Medicare Part D expenditures, according to the Kaiser Family Foundation. Expenditures for the 12-month period from June 1, 2022, to May 31, 2023, were used in the spending calculations. To be negotiation eligible, the drugs couldn’t have a generic or biosimilar competition and had to on the market for more than nine years for small-molecule drugs and more than 13 if it was a biologic. Drugs with orphan designation and plasma-derived products were excluded.

The 10 selected drugs included only one cancer drug, Imbruvica (ibrutinib), which is approved as a treatment for chronic lymphocytic leukemia (CLL)/small lymphocytic lymphoma (SLL); Waldenström’s macroglobulinemia, a rare white blood cell cancer, and chronic graft versus host disease after failure of one or more lines of systemic therapy. Imbruvica is a Bruton tyrosine kinase. Valuate Health Consultancy noted in a LinkedIn post yesterday that a second-generation of Bruton tyrosine kinases, a group that includes Calquence (acalabrutinib) and Brukinsa (zanubrutinib), are gaining traction and cutting into Imbruvica sales, CMS price negotiation for Imbruvica may not affect the other Bruton tyrosine kinases, according to the consultancy, because of “meaningful clinical differences among the class.”

Valuate said it was surprising that Stelera (ustekinumab) was included in the list of the first 10 drugs for two reasons: Stelara is expected to face biosimilar competition next year and it is not among not among top 20 drugs when it comes to Part D expenditures. According to FAQ published by the Kaiser Family Foundation in August 2023, if a biosimilar were to come on the market, Stelara would remain a selected drug but no maximum fair price would be set. CMS would need to decide whether there was biosimilar competition between now and Aug. 1, 2024, the scheduled end of the negotiation process.

In a series of posts on X yesterday, former FDA commissioner Scott Gottlieb, M.D., said that many expected Ofev (nintedanib), Pomalyst (pomalidomide), Xtandi (enzalutamide) and Invega (paliperidone) to be among the first 10 drugs selected for price negotiation. “It shows that the Medicare’s criteria is still not predictable,” Gottlieb said in a post. Those drugs are likely on next year’s list, Gottlieb said, which will be subjected a maximum fair price in 2027.

Gottlieb said Medicare drug negotiation and maximum fair price will have the unintended consequence of shifting development to higher cost biologics because they have a longer period of protection from negotiation.

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