Key Takeaways:
- Many issues and questions remain regarding implementation of the “Prescription Drug Pricing Reform” provisions of the Inflation Reduction Act of 2022 (IRA).
- Much of the initial program guidance for the IRA’s drug negotiation provisions will be released in the first nine months of 2023, making early 2023 a critical time to help shape the implementation of this significant element of the legislation.
- Key guidance is also expected regarding the Part B inflationary rebates and elements of the Part D redesign.
Overview
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA). The drug pricing provisions in Subtitle B of Title I of the IRA, entitled “Prescription Drug Pricing Reform,” enact government price negotiation authority for the Medicare program, establish inflation penalties in the form of rebates, and fundamentally redesign the Part D program. While the legislation is now enacted, many issues and questions remain regarding its implementation, which will be addressed through a combination of guidance, program instruction, agreements with manufacturers, and notice-and-comment rulemaking. Much of the initial program guidance for the drug negotiation provisions will be released in the first nine months of 2023, making the first two quarters of 2023 a critical time to engage with the Centers for Medicare & Medicaid Services (CMS) to help shape the implementation of this significant element of the legislation. Key guidance is also expected during 2023 regarding the Part B inflationary rebates and elements of the Part D redesign.
Drug Pricing Negotiations – IRA §§ 11001-11002
The IRA amends the Part D noninterference clause that prohibits the Secretary of Health and Human Services (HHS) from negotiating prescription drug prices, and instead requires CMS to negotiate with manufacturers for “selected drugs”—the subset of “qualifying single source drugs” with the highest Part B and D spend in a given year—to establish a “maximum fair price” (MFP). The IRA further requires manufacturers to make selected drugs available at the MFP to “MFP-eligible individuals” (i.e., Medicare beneficiaries), and certain entities that furnish services to such beneficiaries, effective beginning January 1, 2026. Part D plans must also cover selected drugs on their formularies, subject to limited exceptions.
Per statute, the negotiation provisions will be implemented through a combination of the Negotiation Agreement and, for initial price applicability years 2026-2028, program instruction and other forms of program guidance. CMS is likely to release most of the key guidance regarding the IRA’s drug negotiation provisions before manufacturers are required to sign the Negotiation Agreement on October 1, 2023.
Key Dates in 2023:
- September 1, 2023: CMS releases list of “selected drugs” for initial price applicability year 2026 (Part D only).
- October 1, 2023: Manufacturers must enter into Negotiation Agreement with CMS.
- October 2, 2023: Manufacturers must submit certain required data to CMS.
Key Guidance Expected from CMS in 2023:
- Guidance to determine which specific drugs are selected for negotiation, including:
- Definition of “qualifying single source drug,” as well as the scope of the applicable exemptions (e.g., for orphan drugs);
- Policies for applying the small biotech exception;
- Definition of “gross covered prescription drug costs” used to identify the qualifying single source drugs with the highest “total expenditures” under Part D, and to identify drugs subject to the “low-spend Medicare drug” exclusion;[1]
- Methodology for identifying, ranking drugs with the highest total expenditures; and
- Policies and processes for implementation of the biosimilar delay
- Policies governing the negotiation process, including “a consistent methodology and process that aims to achieve the lowest [MFP] for each selected drug,” which must include consideration of certain specified manufacturer-specific factors (e.g., R&D costs for the drug) and factors related to therapeutic alternatives (e.g., the extent to which the drug and its therapeutic alternatives address an unmet medical need), as well as calculation of the statutory ceiling prices
- Guidance regarding application of the MFP, once negotiated, including procedures or processes:
- To ensure the MFP for a selected drug is applied before any coverage or financial assistance or other discounts;
- To compute and apply MFP across different strengths and dosage forms; and
- To carry out program with respect to MFP-eligible individuals
- Guidance regarding coverage of selected drugs by Part D plans[2]
- The Negotiation Agreement, which must include provisions governing key elements of the negotiation program, including:
- The agreement term;
- Requirements to negotiate and renegotiate (and potentially elements of the negotiation process);
- Requirement to offer MFP to, or on behalf of, MFP-eligible individuals;
- Requirements regarding the offer of MFP to 340B covered entities;
- The information manufacturers must submit for CMS to carry out the negotiation and renegotiation processes;
- Instructions on the form and manner for reporting required information to CMS;
- Other requirements determined by CMS to be necessary to administer the program and monitor compliance with the program; and
- Data confidentiality requirements
Part B Inflationary Rebates - IRA § 11101
The IRA imposes mandatory rebates for price increases on “Part B rebatable drugs”—defined as single source drugs and biologicals (including biosimilars) for which payment is made under Part B—that exceed the rate of inflation relative to a payment amount benchmark. Drugs and biologicals excluded from this Part B inflationary rebate include those with annual price changes of less than $100 per individual, certain specified Part B vaccines, and qualifying biosimilar biological products with Average Sales Prices (ASPs) that do not exceed the reference biological’s ASP during the quarter for a period of five years.
[3] While the IRA did not specifically provide for implementation of the Part B inflationary rebate via guidance, this policy was added to section 1847A of the Social Security Act (SSA), which already included a provision authoring implementation by program instruction or otherwise. That said, CMS has gone through rulemaking to implement other provisions of section 1847A, including the newly added discarded drug refund under section 1847A(h) of the SSA, and CMS expressly stated that it would be addressing overlap between that provision and the Part B inflationary rebates “in future rulemaking.”
[4]
The Part B inflationary rebate also has an indirect impact on beneficiary coinsurance. Specifically, if a rebate payment is required for a Part B rebatable drug
furnished on or after April 1, 2023, the coinsurance for the beneficiary receiving the drug must be 20 percent of the inflation-adjusted payment amount. In the CY2023 Outpatient Prospective Payment System (OPPS) final rule CMS noted that “[a]dditional details on the implementation [of this provision] are forthcoming and will be communicated through a vehicle other than the CY 2023 OPPS/ASC regulation.”
[5] CMS has since issued some guidance to Medicare Advantage plans indicating that CMS will publish these adjusted cost-sharing amounts via the quarterly ASP files. However, CMS may still go through rulemaking to implement this provision of the IRA, as it lacks express authority for implementation via guidance, as does the provision of the SSA where the policy is codified (section 1833 of the SSA).
Key Dates in 2023:
- Utilization on “Part B rebatable drugs” is subject to rebates effective January 1, 2023.
- Cost-sharing reductions for Part B rebatable drugs go into effect on April 1, 2023.
- Quarterly rebate reports may be issued to manufacturers as early as July 1, 2023; however, CMS may delay sending reports to manufacturers for 2023 and 2024 until September 30, 2025.
- Manufacturers must pay rebates within 30 days of receiving rebate report, so the earliest rebates would be due is August 1, 2023.
Key Guidance Expected from CMS in 2023:
- Policies and procedures governing the Part B inflationary rebate, including the underlying calculation, contents of the rebate report, and overlap between Part B inflationary rebates and discarded drug refunds. As noted above, this is likely to be established through notice-and-comment rulemaking. However, some of this guidance may come in later years given that CMS can delay sending out rebate reports until 2025.
- Policies and procedures governing application of the related beneficiary cost-sharing policies, which is also likely to be established through rulemaking. These policies must be implemented on or before April 1, 2023.
Part D Redesign – IRA § 11201
The IRA makes many changes to the Part D benefit to reduce patient out-of-pocket costs and to change manufacturer and plan responsibility, which take effect beginning in either plan year 2024 or plan year 2025.
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While none of these benefit design changes take effect in 2023, it generally takes plans 18 months prior to the start of a contract year to establish their benefit designs, and CMS begins preparing for a given plan year during the previous calendar year. Accordingly, we expect to see implementation of the plan year 2024 policies, and perhaps even some plan year 2025 policies, during calendar year 2023. Indeed, CMS has already proposed to implement the expanded LIS eligibility provisions established by section 11404 of the IRA, which take effect on January 1, 2024, in the Contract Year (CY) 2024 Policy and Technical Changes to the Medicare Advantage Program and Medicare Prescription Drug Benefit Program proposed rule (“CY2024 Parts C and D Proposed Rule”).
[6] We expect that the remaining plan year 2024 IRA changes will be implemented via program instruction or other guidance, such as the CY 2024 Notice of Methodological Changes for the Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies, in early 2023.
Key Dates in 2023:
- Comments are due in response to the CY2024 Parts C and D Proposed Rule at 5 p.m. on February 13, 2023, with the final rule expected in Spring 2023.
- CMS will issue the CY 2024 Advance Notice of Methodological Changes for the Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies in February 2023, with a likely 30-day comment period and final Notice expected in April 2023.
- The bid deadline for CY 2024 is June 5, 2023.
Key Guidance Expected from CMS in 2023:
- Because the elimination of cost sharing in the catastrophic phase takes effect in 2024, prior to implementation of the $2,000 out-of-pocket maximum in 2025, Part D plans may be required to absorb costs for covered Part D drugs furnished to beneficiaries in the catastrophic phase in 2024. Part D plans will consider this as they evaluate their bids for 2024 and it is likely CMS will issue guidance regarding this enhanced exposure to plans well in advance of the June 5, 2023 bid submission deadline.
- CMS may also begin rolling out the IRA’s replacement to the Coverage Gap Discount Program in late 2023, in particular the manufacturer agreement, which must be signed by manufacturers by March 1, 2024.
[1] CMS has already issued a proposed rule that would alter the existing regulatory definition of this term under 42 C.F.R. § 423.308. 87 Fed. Reg. 76,452, 79,611-13 (Dec. 27, 2022). The deadline to submit comments is 5 p.m. on February 13, 2023.
[2] CMS has already issued a proposed rule to implement and interpret this provision.
Id. at 79,540.
[3] Units of Part B rebatable drugs that are purchased under the 340B drug pricing program or packaged into the payment for another item or service and are not separately payable are also excluded. Part B inflationary rebates may also be waived or reduced in the case of drug shortages and severe supply chain disruptions.
[4] 87 Fed. Reg. 69,404, 69,711 (Nov. 18, 2022).
[5] 87 Fed. Reg. 71,748, 71,988 (Nov. 23, 2022).
[6] 87 Fed. Reg. at 79,479.
