See my previous post on negotiating prices for IRA drug options (part 1) and manufacturer data submission (part 2).
Today we will discuss the negotiation process and how CMS will set the Maximum Fair Price (MFP)
What is the pricing for different doses of CMS?
“CMS will establish a single price based on the cost per 30-day equivalent supply of selected drugs (rather than per unit, such as tablets, capsules, injections, or per volume or weight-based metrics), weighted by dosage form and strength. ”.
Is there a maximum or “cap” on the Maximum Fair Price (MFP) that CMS can offer?
The maximum amount of MFP will not be higher than:
- Amount equal to the sum of the specific program enrollment weighted amounts
- The lower of the two: the average non-FAMP price increased for inflation in 2021 (CPI-U) or the average non-FAMP price in February 2025
CMS will aggregate the 60 quantities determined for each NDC-11 for the selected drug to calculate a single quantity for the selected drug's dosage form, strength, and package size (calculated separately for each method). These amounts can then be compared directly and the single MFP for the selected drug (including all dosage forms and strengths) will be capped at the lower amount.
Sample packs, NDCs from secondary manufacturers, NDCs with no dispensed quantity, or NDCs with a total cost of covered prescription drugs of $0 will not be included in the MFP calculation.
Are certain claims excluded from MFP refunds?
Once the MFP price is determined, in some cases the manufacturer is not required to pay an MFP refund. These include:
“…[justification] Codes for drugs anticipated to be purchased at or below the MFP for which the manufacturer and dispensing entity have a separately negotiated refund amount that differs from the standard default refund amount and the claim is excluded from the MFP refund under Section 1193(d)(1) “Extra-paragraph Act”
CMS must justify the MFP to the manufacturer. How will it do this?
CMS justification will follow 4 steps:
- Determine treatment alternatives, if any, to the selected drug. This includes FDA-approved drugs for relevant indications and for off-label use if included in nationally recognized evidence-based guidelines and CMS-recognized pharmacopeias. CMS will first identify therapeutic alternatives within the same pharmacological class as the selected drug based on characteristics such as chemical class, therapeutic class, or mechanism of action, and then consider therapeutic alternatives in different pharmacological classes based on CMS' review of relevant data (see below The problem).
- Weighing the Price of Treatment Alternatives. For Part D drugs, this is the total covered drug cost (TGCDC) net of DIR and CGDP payments and/or the average selling price (ASP) of the Part B drug (or last year's MFP, if applicable)
- Determine whether a drug has unique benefits.To assess whether the selected drug (relative to treatment alternatives) addresses an unmet need, has a beneficial impact on specific IRA populations, and the extent to which the selected drug represents a therapeutic advance compared with alternative treatment options
- Preliminary price adjustment further. These adjustments will be based on data submitted by manufacturers, including: (1) R&D costs and R&D cost reimbursements, (2) current production and distribution unit costs; (3) prior federal financial support for new therapy discovery and development; (4) ) Pending and approved patent applications or exclusivities; (5) U.S. market data and revenue and sales data for the drug, and (6) optional manufacturer submissions.
What data does CMS use to determine treatment options?
“…CMS will use major manufacturer and public submission data, FDA-approved indications, drug classification systems commonly used in the public and commercial sectors for formulary development, CMS-endorsed Part D summaries, widely accepted clinical guidelines, and CMS-led literature. Reviews, drug or drug class reviews, and peer-reviewed studies.
How does CMS set the initial quote?
The primary way CMS sets the initial offer for 2027 is based on the net price of treatment alternatives.
However…
If the selected drug has no treatment alternatives, if the prices of all identified treatment alternatives are above the MFP's legal upper limit…or if the selected drug has a single treatment alternative and its price is higher than the MFP's legal upper limit, then CMS will The starting point for the initial quotation is determined based on the lower of FSS or…”four prices”…whichever is lower. If the FSS and Big Four prices are above the legal cap, then CMS will use the legal cap as the starting point for the initial quote.
Why did CMS choose to set the initial price based on the price of treatment alternatives?
Please note that CMS did consider multiple options in setting the initial offer, including net price, unit cost of production/distribution, domestic reference price for Federal Supply Scheme (FSS) prices, and “fair profit” price based on whether R&D costs were reasonable Unit costs and profits for production and distribution are recovered, but settled at the net price of the therapeutic alternative.
However, it considers the net price of the treatment alternative – despite its limitations – to be a preferred option:
“In taking this approach, CMS acknowledges that the pricing of therapeutic alternatives for selected drugs may not reflect their clinical benefit, however, the use of net Part D plan payment and beneficiary liability for therapeutic alternatives, ASPs, or MFPs allows CMS to Initial offers are developed in the context of the cost and clinical benefit of one or more drugs that treat the same disease or condition. By looking at the price of treatment alternatives using the selected drug, CMS will be able to price it relative to whether the selected drug is available. more, with fewer or similar benefits than its treatment alternatives.
What factors will affect CMS's decision to adjust its initial quotation?
Some considerations include:
- The clinical benefit of the selected drug compared with its treatment alternatives,
- Impact on patient-reported outcomes and patient experience
- Impact on caregivers
- Comparison of usage patterns of selected drugs and their treatment regimens
- Feedback from clinicians, patients or patient groups, academic experts, and/or FDA inquiries
- Impact on CMS special groups (disabled, elderly, terminally ill, children and other Medicare beneficiaries)
- Whether the treatment meets an unmet medical need
Key relevant information that will be considered include: “…peer-reviewed studies, expert reports or white papers, clinician expertise, real-world evidence and patient experience.” Key outcomes to be considered include a variety of outcomes, including patient-centered Center outcomes and patient experience.
Although CMS states that it will not use a QALY-based cost-effectiveness analysis, it has not yet ruled on whether other methods, such as equivalent life years gained (evLYG), total health years (HYT), or generalized and risk-adjusted QALYs (GRA), may be used. -QALY).
These factors will influence price through a qualitative decision-making process.
Will caregiver experience influence CMS decisions?
Yes. “CMS may also consider the caregiver's perspective when it directly reflects the patient's experience with or related outcomes of taking the selected medication,” the guidance states.
Does CMS consider cost when evaluating whether a treatment is therapeutically progressive?
Yes.
“CMS will determine the extent to which a selected drug represents an improvement in treatment compared with its treatment alternatives by examining improvement in outcomes compared with treatment alternatives (e.g., the selected drug is curative compared with an alternative treatment that delays treatment CMS will consider the cost of such treatment alternatives if there is evidence that the selected drug provides a substantial improvement in outcomes compared with treatment alternatives for the selected drug for an indication. It may be thought that the selected drugs represent therapeutic progress.
How will the negotiation process work?
The image below summarizes this.
More details can be found in the CMS guidance document here.
