IRA Update: Who "Won" the Initial Price Negotiations?

CMS’ announcement regarding the Maximum Fair Prices (“MFP”) of the initial 10 drugs selected for “negotiations” was released August 14th, a bit earlier than the September 1st deadline. While its impact on the pharmaceutical industry remains to be seen, it begs the question: who fared better in these pricing negotiations, manufacturers or the government?

In this eighth installment of our ongoing series on the key provisions of the IRA, we will do a deep dive into early MFP discounts by comparing the MFP prices to other pricing benchmarks. Both sides have publicized their perspectives about the outcome, and within the pharmaceutical corridors, the negotiations continue to take center stage. The White House press briefing announced the negotiated prices by saying, “American taxpayers are expected to save $6 billion on prescription drug costs, and people enrolled in Medicare are expected to save $1.5 billion in out-of-pocket costs in 2026 alone,” based on the negotiation. A few manufacturers overall have said the prices were “not too bad” with one manufacturer expressing confidence in their ability to navigate the impact of the negotiated prices.

CMS' announcement listed the drugs in order from the largest to smallest discount, so we know the discounts for the initial 10 drugs range from 79% on Januvia to 38% on Imbruvica (see Table 1 below). This was likely due to a desire from the White House to publicly show the significant discounts extracted from manufacturers during the first round of negotiations during this highly charged political season.

[MFP = Maximum Fair Price defined in the Inflation Reduction Act of 2022 (IRA) as the ceiling price the manufacturer must sell a selected drug for use by Medicare beneficiaries]

Source: White House Fact Sheet: https://www.cms.gov/newsroom/fact-sheets/medicare-drug-price-negotiation-program-negotiated-prices-initial-price-applicability-year-2026

These are certainly impressive discount percentages, but additional context is needed to explore how meaningful they are and has led us to examine some unanswered questions. To start down this path, we wanted to know:

Background on MFP:

To help answer the question of who won the negotiations, we first need to step back and understand what the MFP is and how it is defined. The IRA establishes an upper limit for the maximum fair price (or MFP) for selected drugs. Once established, the manufacturer must sell at the MFP when the selected drug is used by Medicare beneficiaries. The upper limit can be established for different medicines in three ways (detailed in the appendix). One of the ways MFPs can be established is by using a percentage of the drug’s average non-federal average manufacturer price (non-FAMP) compared to how long the drug has been on the market.

Since non-FAMP is a) one of the starting points for MFP price negotiation, b) is the basis for the Federal Supply Schedule (“FSS”) pricing (used by the Department of Veteran Affairs) and c) is publicly available, a comparison between the FSS’s Big 4 and MFP price could provide some insights into how much deeper the negotiated price is than the FSS Big 4 price. [Please note we used the Big 4 price as opposed to the FSS price since it is the lower of the publicly available FSS prices.]

Note: For comparison purposes, we selected an NDC that had a WAC close to the CMS published List and Negotiated Prices, these can be found in the appendix.

As expected, with Non-FAMP being a starting point for the negotiations, the CMS MFP negotiated prices are significantly below the statutorily set Big 4 prices. 4. The majority of the negotiated MFP selected drugs are oral solids for chronic conditions, and they have discount comparisons ranging from 53% more than Big 4 (with Januvia) to 29% more (Entresto).

There are two products where the MFP price is close to the Big 4 price, Stelara and Imbruvica, which are fundamentally different than the other negotiated drugs. Stelara has multiple formulations some of which can be self-administered while Imbruvica is the only cancer drug on the initial selected product list. Stelara’s MFP discount of the CMS List Price is 4% below the Big 4 discount (66% discount versus 62% discount), while Imbruvica’s MFP discount is 7% below the Big 4 discount. Perhaps the non-FAMP was the primary method of determining the MFP with those two specific products. The treatment of these other types of medications seems likely to be an important consideration in the next set of products to be negotiated – more to come in a future blog post.