• On March 15, 2023, the Centers for Medicare & Medicaid Services (CMS) issued an initial guidance regarding the Medicare Drug Price Negotiation Program (Negotiation Program) established by the Inflation Reduction Act of 2022 (IRA).
• This initial guidance describes how CMS intends to implement the Negotiation Program for initial price applicability year (IPAY) 2026 (January 1, 2026 to December 31, 2026). IRA provisions not applicable in IPAY2026, including the selection and negotiation of Part B drugs, are not addressed in this guidance.
• Comments are due to CMS at the IRA mailbox by April 14, 2023.
• In the initial guidance, CMS is voluntarily soliciting comment on almost all topics.
• Notably, CMS did not solicit comment on provisions relating to the identification of selected drugs for IPAY 2026, to include an expansive interpretation of the term “Qualifying Single Source Drug,” which is likely to increase the number of products that may be eligible for negotiation earlier than expected.

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In the initial guidance, CMS is voluntarily soliciting comment on almost all topics. Selected, key elements of the initial guidance for which CMS is voluntarily soliciting comment include the following:

• Removal of Selected Drugs: A selected drug will no longer be subject to the Negotiation Program if CMS determines: (1) the FDA has approved or licensed a generic drug or biosimilar biological product, as applicable, that identifies as its reference listed drug a product that is included in the selected drug; and (2) the generic drug or biosimilar biological product is marketed pursuant to such approval or licensure, as applicable. To determine whether the generic or biosimilar is marketed, CMS has adopted an additional requirement that there be “robust and meaningful competition.”
• Negotiation Agreement: CMS intends to enter Agreements with Primary Manufacturers of each selected drug (defined as the holder of the NDA/BLA), and hold the Primary Manufacturer responsible for the actions of Secondary Manufacturers (defined as other manufacturers either listed on the NDA/BLA or that market the selected drug pursuant to an agreement with the Primary Manufacturer).
• Providing Access to the MFP: CMS intends to require that Primary Manufacturers provide access to the MFP to dispensers (e.g., pharmacies) in one of two ways: (1) by ensuring the price paid is no greater than MFP; or (2) by providing retrospective reimbursement for the difference between the dispensing entity’s acquisition cost and the MFP. Primary Manufacturers that select the latter option must ensure that dispensers (as well as intermediary entities such as wholesalers) are reimbursed the difference between their acquisition cost and the MFP within 14 days.
• Data Submission, Use, and Destruction Requirements. Primary Manufacturers will have just over 30 days to submit required data elements to CMS (e.g., non-FAMP, manufacturer-specific factors). CMS seeks to impose strict limitations on the Primary Manufacturer related to use and destruction of information received during the negotiation process; however, CMS proposes that only some of the information manufacturers submit to CMS will be treated as confidential and exempt from FOIA.
• Data Regarding Therapeutic Alternatives: When negotiating a maximum fair price (MFP), CMS intends to consider certain evidence about therapeutic alternatives, including information submitted by the Primary Manufacturer and members of the public.
• Use of QALYs: CMS will not use information in the negotiation process that treats extending the life of individuals in certain populations as of lower value, which CMS defines to include QALYs and solicits information regarding other similar metrics.
• Single MFP: CMS intends to identify a single MFP at each step of the negotiation process, even for a selected drug with multiple dosage forms and strengths.
• Ceiling Price: CMS will not offer or agree to a counteroffer for an MFP that exceeds the ceiling price.
• Developing initial offer and counteroffer. To determine an initial offer and counteroffer for the selected drug, CMS intends to use the following process: (1) identify indications for the selected drug and therapeutic alternative(s); (2) use as a starting point the Part D net price for Part D drug therapeutic alternative(s) and/or Part B average sales price for Part B therapeutic alternative(s); (3) evaluate clinical benefits of the selected drug to adjust the starting point; (4) further adjust the preliminary price through consideration of manufacturer-specific data (e.g., R&D costs; current unit costs of production and distribution) to determine the initial offer price.
• Manufacturer Compliance and Oversight: CMS will monitor compliance with the terms of Negotiation Agreements and establish a mechanism to notify the Primary Manufacturer of violations.
• 340B: A manufacturer participating in the 340B Program is not required to provide a covered entity with access to the MFP of a selected drug (with respect to an MFP-eligible individual receiving the drug from a covered entity) if the 340B ceiling price is lower than the drug’s MFP.
• Impact of Negotiation on Inflation Rebate Provisions: Selected drug status does not exempt drug from inflation rebates.

Once CMS has had the opportunity to consider the comments submitted, the agency will issue revised guidance for IPAY2026. In the revised guidance, CMS may make changes to any policies, including any policies on which CMS has not expressly solicited comment.