When it comes to prescription drug costs, policymakers have set their focus on the consumer:

• “Let’s lower drug prices for the consumer.”
• “Let’s give consumers more options in paying their out-of-pocket costs.”
• “Let’s give consumers more pricing information so they can compare costs across services and locations.”

These have been perennial goals in both the regulatory and legislative arenas—and recently, they have seen a lot of action. To help me explain what’s happening, I’m bringing in my colleague Rachel Stauffer.

We’ll start with a regulatory status check on the drug pricing provisions of the Inflation Reduction Act (IRA), which Congress passed a little over a year ago. The Centers for Medicare & Medicaid Services (CMS) has had its hands full implementing the IRA recently.

Just last week, CMS released draft guidance for implementing the new Medicare Prescription Payment Plan that was part of the IRA. This program will start with plan year 2025 and gives Medicare beneficiaries with Part D (prescription drug coverage) the option to pay out-of-pocket costs in monthly installments over the course of the year. Here is a fact sheet, an implementation timeline and CMS’s draft guidance. The draft guidance outlines the requirements and procedures for certain aspects of the plan and is open for comment through September 20, 2023. This is the first of two draft guidances, with the second to be released in early 2024. These guidance documents build on the technical memorandum CMS issued on July 17, 2023.

CMS has also begun implementation of inflationary rebates as required by the IRA. This program requires drug companies to pay a rebate if they raise their prices for certain drugs faster than the rate of inflation. October 1, 2022, was the start of the first 12-month period for which drug companies will be required to pay rebates to Medicare if their prices for certain Part D drugs increase faster than the rate of inflation. For Part B “rebatable” drugs, CMS has released two quarters of data. The agency indicated that some Medicare beneficiaries who take the identified drugs may save between $1 and $449 per average dose, depending on their individual coverage.

This Tuesday (August 29, 2023), CMS also made a BIG announcement regarding the implementation of the Medicare Drug Pricing Negotiation Program. CMS named the first 10 Part D drugs for which Medicare will negotiate prices with manufacturers starting in 2026. The Office of the Assistant Secretary for Planning and Evaluation also released a report on Medicare beneficiary out-of-pocket expenses for these drugs. Per the IRA, 10 drugs or vaccines will be selected for 2026, an additional 15 in 2027 and 2028 each, and an additional 20 in 2029 and subsequent years. (Part B drugs are included beginning in 2028.) A vaccine or drug must be considered a qualifying single-source drug to be included in the negotiation program. Branded vaccines or drugs must be past their exclusivity period (seven years for small molecule and 11 years for biologics or vaccines) and must not face any generic or biosimilar competition. CMS has been working to implement this program on a quick timeline (2026 seems far away, but when you understand the processes, it is just around the corner!), and this list of the first 10 drugs represents a significant milestone. (We should note that multiple drug manufacturers and organizations have filed suit against the government, claiming the program is unconstitutional.)

McDermottPlus issued a report last year analyzing drug spending data and discussing which drugs could be selected for negotiation first. Our analysis aligns closely with the list just released by CMS—we got eight out of 10 correct with 2020 data, not bad! The 10 drugs included on CMS’s list are as follows:

• Eliquis: Prevention and treatment of blood clots
• Jardiance: Diabetes, heart failure
• Xarelto: Prevention and treatment of blood clots, reduction of risk for patients with coronary or peripheral artery disease
• Januvia: Diabetes
• Farxiga: Diabetes, heart failure, chronic kidney disease
• Entresto: Heart failure
• Enbrel: Rheumatoid arthritis, psoriasis, psoriatic arthritis
• Imbruvica: Blood cancer
• Stelara: Psoriasis, Psoriatic arthritis, Crohn’s disease, ulcerative colitis
• Fiasp, Fiasp FlexTouch, Fiasp PenFill, NovoLog, NovoLog FlexPen, NovoLog Pen: Diabetes.

CMS will meet with the companies that produce these drugs in fall 2023. CMS will also host listening sessions for each selected drug, currently planned between October 30, 2023, and November 15, 2023. Applications to be a speaker will open on September 1, 2023, and will close on October 2, 2023. The public is also allowed to submit “data on selected drugs, therapeutic alternatives to the selected drugs, data related to unmet medical need, and data on impacts on specific populations” by October 2, 2023. More information about the listening sessions can be found here. CMS will likely receive significant input from a wide variety of stakeholders.

In the legislative branch of government, things will heat up quickly when Congress returns from its summer break next week. The House has largely focused on improving drug pricing transparency, with three bills that aim to achieve that goal: H.R. 3561, the PATIENT Act; H.R. 4822, the Health Care Price Transparency Act; and H.R. 4507, the Transparency in Coverage Act. These bills all require health plans and hospitals to report various data around pricing for items and services. For example, health plans would be required to report the average amount they pay for drugs dispensed and administered (for a 90-day period beginning 180 days before submission) with more than 20 claims. These bills, if enacted, would expand upon the current regulatory requirement for health plans to display the out-of-pocket cost liability for prescription drugs and the negotiated rate of drugs with more than 20 claims. For more details on these bills, see this +Insight from Rachel and our colleague Leigh Feldman, who break down the hospital and health plan provisions.

Another major legislative focus has been enhancing oversight of pharmacy benefit managers (PBMs). PBMs function as intermediaries between insurance providers and pharmaceutical manufacturers. PBMs play a significant behind-the-scenes role in determining the price that individuals pay at the pharmacy counter. The IRA and other congressional actions around drug pricing and transparency have not significantly touched these intermediaries yet, so PBM reform is next on Congress’s drug pricing to-do list.

McDermottPlus will soon release a report on upcoming congressional action related to PBM reform. As a preview, seven bills on PBMs are under consideration, and they propose reforms in the following areas:

• Requiring PBMs to disclose certain information about their ownership.
• Requiring PBMs to issue annual reports and/or make disclosures related to their compensation, fees, rebates and formularies.
• Banning spread pricing in Medicaid. Spread pricing occurs when PBMs charge payers (such as Medicaid) more than they pay the pharmacy for a medication. PBMs keep this difference as a way of generating revenue.
• Prohibiting PBMs from charging enrollees more in cost-sharing than the net price of a drug or restricting pharmacies from providing additional information to enrollees about the difference in the price of drugs under the plan and outside the plan’s coverage.
• Requiring PBMs to pass on 100% of the rebates they receive from drug manufacturers to group health plans.
• Prohibiting PBM compensation based on the price of a drug as a condition of entering into a contract with a Medicare Part D plan. Service fees will not be connected to the price of a drug, discounts, rebates or other fees.
• Requiring retail community pharmacies to participate in surveys such as the National Average Drug Acquisition Cost survey, which measures pharmacy acquisition costs and is often used in the Medicaid program to inform reimbursement to pharmacies.
• Requiring various oversight organizations to issue reports to Congress on PBMs. These organizations include the Medicare Payment Advisory Committee, the US Government Accountability Office and the Office of Inspector General.

If CMS can carry out the programs under the IRA and Congress is able to pass some or all of these transparency policies, the landscape for drug pricing and transparency will change. That is a big “if,” however, so stay tuned for more information on PBM reform and updates on how the legislative and regulatory processes play out. Also, please feel free to reach out with questions about IRA implementation or other drug pricing and transparency efforts and initiatives!

Until next week, this is Jeffrey (and Rachel) saying, enjoy reading regs with your eggs.

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