Updated CMS Guidelines for IRA Maximum Fair Price (MFP) – Healthcare Economist

CMS published June 30, 2023 Guidance Provides more details on how the Maximum Fair Price (MFP) is calculated. The document also has nearly 100 pages of public comments. Some key points are summarized below. Most interesting is that CMS is taking a “reference price” based approach to setting up MFPs.

• Set reference pricing for MFPs. “CMS will use Part D Net Price (‘Net Price’) and/or ASP [average sales price] Treatment Alternatives. Adjustments based on other factors will then be considered, CMS said, but it appears reference pricing is the primary means of setting the MFP. CMS said it will “take a qualitative approach” to align initial negotiations based on the unique properties of the drug and its therapeutic alternatives In addition, please note that CMS will consider the price of generic and biosimilar products in treatment alternatives. In the absence of alternative treatment options, CMS will consider prices based on the FSS or the “Big Four”66 (“Big Four Prices”) The starting negotiation price of .
• Do not use QALY. CMS expressly does not use Quality Adjusted Life Years (QALYs) as part of MFP. What will they consider? Outcomes such as cure, survival, progression-free survival, improvement in morbidity, improvement in symptoms, or patient-reported outcomes may be considered.
• productivity impact. CMS said it would include the impact on patient productivity, but not the treatment’s impact on caregiver productivity.
• caregiver perspective. CMS says they “…may also consider the caregiver’s perspective as it directly reflects the patient’s experience or associated outcomes taking the drug of choice.” personnel burden.
• Availability of generic drugs. MFP may not be relevant when generics or biosimilars are available. CMS said they will use Prescription Drug Events (PDE) data and data from Average Manufacturer Prices (AMP) to inform this decision.
• Orphan drug designation is determined by FDA, not CMS. CMS does not consider withdrawal of orphan drug designation or withdrawal of approval to disqualify a drug from participating in the MFP’s negotiated orphan drug exclusion.
• Confidentiality of data during negotiations. CMS will not publicly discuss ongoing negotiations until it issues a Maximum Fair Price (MFP) Interpretation unless major manufacturers publicly disclose information about the negotiation process.
• MFP public statement. CMS will issue an explanation of how the MFP was derived no later than March 1 each year before the MFP becomes effective.
• Using clinical validity and cost-effectiveness to determine MFP. CMS stated that “CMS reaffirms that it will no [emphasis mine]Using evidence from comparative clinical effectiveness studies, prolonging the life of older, disabled or terminally ill individuals is considered less valuable than prolonging the life of younger, non-disabled or non-terminal ill individuals. CMS also clarified that for the 2026 initial price application year, it will review cost-effectiveness measures and studies using such measures to determine whether the measures used can be considered under Section 1194(e)(2) of the Act.However, while these measures could be considered, they would no [emphasis mine] This measure may be used to adjust the initial offer if the relevant information is not provided or is not permitted under Section 1194(e)(2) of the Act and Section 1182(e) of the Act. “
• unmet medical need. CMS will consider a drug to have an unmet medical need if “no other treatment options exist or existing treatments do not adequately address the disease or condition.” The decision will be assessed individually for each indication. The method of the CMS will be determined by FDA guidance.
• Manufacturer specific data. CMS revises a large amount of data that manufacturers are expected to submit.

Data points that CMS will consider when making adjustments to MFPs beyond reference pricing will include:

1. Manufacturer R&D costs. If major manufacturers have not recouped their R&D costs, CMS could consider raising the initial price151.Conversely, if major manufacturers have recovered R&D costs, CMS can consider lowering the initial price or not adjusting
2. Current unit cost of drug production and distribution. If the unit cost of production and distribution is lower than the preliminary price, China Medical System may consider lowering the preliminary price; if the unit cost of production and distribution is higher than the preliminary price, China Medical System may consider upward adjustment of the preliminary price.
3. Previously provided federal financial support for the discovery and development of new treatments for this drug. CMS may consider lowering the initial price if the drug’s discovery and development funding comes from federal sources. It’s unclear how this will work, since most drugs (at least in the basic science phase) receive some support, even if indirect, from federal sources.
4. Data on pending and approved patent applications or exclusivity recognized by the FDA, and applications and approvals for the drug under section 505(c) of the FD&C Act or section 351(a) of the PHS Act. If no competing drug enters the market in the future, this could affect CMS’ determination that the drug will continue to fill an unmet medical need.
5. Market data and revenue and sales data for the drug in the U.S.. If the average commercial net price is lower than the preliminary price, CMS may consider lowering the preliminary price. If the average commercial net price is higher than the preliminary price, CMS may consider raising the preliminary price.

Complete CMS guide available here.