IRA Update: Navigating CMS' Second list of Medicare Drugs Subject to Negotiation and Predicting their Maximum Fair Prices

The second list of Medicare drugs under the Inflation Reduction Act (IRA) to be negotiated by CMS was announced HHS Announces 15 Additional Drugs Selected for Medicare Drug Price Negotiations in Continued Effort to Lower Prescription Drug Costs for Seniors | CMS on January 17, 2025, one of the last acts of the Biden administration. As of the date of this blog we are not certain what the Trump administration will do with the IRA. The administration’s signalling has been vague. For instance, at both Robert F. Kennedy Jr’s confirmation as the United States Secretary of Health and Human Services, and at Dr. Oz’s hearing to lead the Centers for Medicare and Medicaid Services (CMS) both have stated the desire for transparency. Regarding negotiations, Dr. Oz said, at his hearing “I'm going to look, as the president has instructed me to already, for every single way that we can reduce drug prices, and there are lots of options available. I feel compelled to pursue every one of them. … [Medicare drug price negotiation] is one of many approaches I want to use.” Assuming the Trump administration keeps the IRA and the negotiation component, this poses a several questions:

• What did the second list of drugs reveal in terms of product selection?
• What can pharmaceutical manufacturers anticipate regarding the negotiation process with the President self-proclaimed as the master of negotiation?
• Will this administration try and out-negotiate the previous with larger discounts?
• Will the administration be friendlier to the manufacturers, as evidenced by the lack of summary of the meeting between the President and PhRMA and pharmaceutical manufacturers in February?
• What can the manufacturers subject to negotiations expect in terms of Maximum Fair Price (MFP) for these products?

In this ninth installment of our ongoing series on the key provisions of the IRA, we will take a deeper dive into the second list of drugs subject to negotiations and do a first prediction on the MFP discounts by comparing the MFP prices to other pricing benchmarks.

Table 1: The list of the second round of 15 Medicare drugs subject to negotiations, conditions they treat, and Part D cost and enrollee figures specific to the drugs

As stated in the IRA, the second list included more drugs (15) subject to negotiations than the initial round (10), and still includes only Part D drugs, but some general observations about the list are also interesting to note:

• There are 4 cancer drugs included in the selection (Xtandi, Pomalyst, Ibrance, and Calquence) whereas the initial list only included 1 cancer drug. From a Medicare coverage standpoint, antineoplastics (which includes many oral chemotherapy drugs), are a protected class. They are included in a set of drug categories established by CMS with the intention to ensure patients have access to them. It is still unclear how these 15 drugs, plus the initial 10 drugs, including the one cancer drug, will be covered by the Medicare plans in 2026. The plans may have financial incentives to use competing drugs with high list, high rebate offerings.
• There are 3 drugs which have been on the market less than 8 years. Ozempic (Market Date: Jan 2018), Rebelsus (Oct 2019), Wegovy (Jun 2021), Calquence (Nov 2017), Austedo (Apr 2017), Austedo XR (May 2023). This is interesting since a product must be approved for 7 years to be eligible for negotiations, so these small molecules are examples of products getting negotiated almost as soon as they are eligible, whereas the other products in this round and the first round of negotiations were on the market longer.

In our IRA blog 8, we compared the disclosed MFP discounts to other publicly available prices such as the FSS/Big 4 price from the FSS contract through the Department of Veterans Affairs, as well as an estimated Medicaid/340B price using WAC as a surrogate for AMP and market dates as provided through Medicaid. Using a similar approach to this second list of selected drugs adds some context for what the discount level of the negotiated products might approach.

Both pricing metrics are very useful for discount context, as the FSS/Big 4 price is one of the announced starting points for negotiation, and the Medicaid/340B price is the price baseline is at launch, which for the negotiated products was very long ago. With Medicaid, a manufacturer may increase price, but the Medicaid rebate calculation only allows for increases at the rate of CPI, or manufacturers incur inflation penalties. While some of the Medicaid Rebate calculations are largely confidential, there are still ways to estimate a Medicaid Net price/340B price using the WAC at launch compared to current WAC taking inflation into account.

Table 2: Comparison of WAC price to FSS/Big 4, Estimated Medicaid/340B Price and Predicted MFP discount:

Note: For comparison purposes, we selected an NDC that can be found in the appendix.

Expectations for MFPs

We anticipate the largest discount to be for Xifaxan at 80%, slightly above Linzess (75%), Tradjenta (72%) and Pomalyst (70%), but all with substantial discounts. These discounts are mainly due to the price increases each product has taken since launch. Xtandi and Janumet are predicted to come in with about 60% discounts, and Trelegy Ellipta, Ibrance and Ofev with discounts at or above 50%, The remaining products range from 33% for much talked about Ozempic/Rebelsus/Wegovy to the low 40% range for the remaining products.

Our prior analysis (blog 8) showed the estimated Medicaid net price was slightly below the negotiated MFPs for 6 of the 9 products analyzed, ranging from 2% to 15% below the MFP. Since some of these products' estimated Medicaid rebates show little/no Medicaid inflation rebate, we believe the MFPs discounts will be slightly higher than the highest Medicaid/340B or the FSS/Big 4 discount. Therefore, in the last column, we predict what an expected MFG discount might be by adding a small percentage to the highest discount.

There is another possibility to increase these discounts and lower the negotiated price. One of CMS' listed negotiation methods is an enrollment-weighted negotiated price (net of all price concessions, including rebates for the negotiated drugs - the full methodology is listed in the appendix). While we cannot get discounts from all payers from an enrollment-weighted perspective for this blog, we can seek to learn more about the average discounts some payers are receiving for their Medicare book of business. Our next blog will focus on the results of this question with Indegene's propriety payer panel to further refine the expected negotiated prices of the second list of 15 drugs.

What's Next?

The Trump administration seems to have kept the same negotiation process timeline as indicated with the announcement last week that all manufacturers in the second list of 15 products have agreed to participate in the negotiation process. Manufacturers and CMS negotiations will commence soon, and the MFPs will be announced sometime in August timeframe, before September 1st. But as the confirmation hearing for Dr. Oz to lead CMS suggests, all options to reduce drug prices are on the table. One specific item to keep an eye on is Favored Nations. In his last administration, Trump was suggesting a Most Favored Nations-like approach to drug pricing where the US would pay no more than other high-income nations for certain drugs. Keeping abreast of updates to the new administration's viewpoints will be critically important during the next couple of months.

Please continue to follow our upcoming blog posts as we continue our assessment of the impact of the IRA.

Meanwhile, you can read the previous editions of our IRA blog series here:

• Part 1 of the series was an overview of the IRA's key provisions.
• Part 2 assessed price increase levels pre/post-2020 election through the end of 2022.
• Part 3 illustrated the impact that both the IRA and the period of post-pandemic higher inflation had on January 2023 price changes. It also talked about the top 50 products accelerating price increases, and how many products stopped short of triggering the inflation penalty.
• Part 4 illustrated the impact of the IRA inflation penalty rebate on Part B drugs.
• Part 5 examined 2023 mid-year price changes in the context of the IRA regulations and provided observations about the 10 initial products selected for "negotiation."
• Part 6 discussed the influence of IRA, Inflation Easing and Medicaid Regulations on the US drug price landscape
• Part 7 examined the initial reactions to the CMS' release of the MFP for the First 10 negotiated Part D drugs
• Part 8 focused on who "Won" the initial price negotiations?
• Part 10 focuses on Trump’s Executive Order Expanding IRA Pill Penalty to International Reference Pricing

References

• U.S. Bureau of Labor Statistics
• Medi-Span Price Rx: Online drug pricing tool
• Lowering US list prices of several products (novonordisk.com)
• FAQs about the Inflation Reduction Act's Medicare Drug Price Negotiation Program | KFF

Appendix

The following NDCs, based on their WAC proximity to the List Price from CMS, with their market dates as Base AMP and Base CPI index were used in the assessment, as was their current WAC and Current CPI Index: