Maximum Fair Price Round 2: Passing the Baton

Published January 24, 2025

On January 20, 2025, CMS announced the set of fifteen drugs targeted for the second round of Maximum Fair Price (MFP) “negotiations” under IRA. With the outcomes of the first price “negotiations” announced only last August, the IRA MFP process is still in its early development and there remains uncertainty over how it will evolve – particularly in terms of the extent to which CMS will aim for true drug cost reductions vs. generating political capital via nominal “savings” on drugs whose net cost is already well below list price. There will thus be considerable interest in what the set of drugs announced on Monday can tell us about the future of the MFP process.

Numbers are rounded to the nearest thousands.

* The commonly treated conditions are limited to conditions for which prescription drug coverage is currently available under the Medicare Part D program.

With the outcomes of the first price “negotiations” announced only last August, the IRA MFP process is still in its early development and there remains uncertainty over how it will evolve – particularly in terms of the extent to which CMS will aim for true drug cost reductions vs. generating political capital via nominal “savings” on drugs whose net cost is already well below list price. There will thus be considerable interest in what the set of drugs announced on Monday can tell us about the future of the MFP process.

We’ll have to wait until the outcomes of the “negotiations” for truly robust insights; however, even at this early stage we see some intriguing hints as to how CMS may approach MFP going forward. These include a significantly greater emphasis on oncology products (four out of fifteen, vs. one out of the first ten) – which, as we noted last year, may offer opportunities for true cost reductions, given lower prevailing rebates in the category. And the semaglutide triad of OZEMPIC, WEGOVY and RYBELSUS offers a potentially tempting bolus of Part D spend for CMS to target. However, other factors may temper cost savings, including the prevalence of drugs very close to loss of exclusivity and the relatively limited Medicare exposure (vs. Commercial) of a number of the targeted products.

Finally, we need to remember that CMS is likely to be influenced by the broader policy and political priorities of the new Trump administration. It is very early to predict what those priorities will be – although the near-simultaneous revocation of Biden’s October 2022 Executive Order 14087, “Lowering Prescription Drug Costs for Americans”, may be an early sign that Medicare drug cost reduction will not have the same priority as it had for the Biden administration. (This Executive Order asked CMS to develop innovative payment models aimed at reducing costs and/or enhancing access for cell and gene therapies, for products with accelerated approval and for generics used for chronic conditions).

Five trends we are watching:

1. Oncology is no longer “protected.”

With this second cycle of MFP “negotiations,” oncology products are much more exposed than previously – four products in this round, vs. only a single product in the first. This is potentially important for impacts on Medicare costs (true vs. nominal savings), given that oncology products typically provide much lower price concessions (e.g., in the form of rebates) than drugs in other therapy areas.

2. Price erosion is coming anyway.

A number of the targeted products will face generic entry in the near future. Once generic products enter, utilization typically converts to much cheaper generic products, which makes price concessions from the originator largely immaterial from a cost standpoint. The potential for true cost savings is thus dependent on the length of time between reduced prices applying and generic entry. For this set of products, “negotiated” prices, and (nominal or actual savings) will apply starting in 2027. A number of them will face generic competition shortly after (or potentially even before) that time. Four of the fifteen products are expected to face generic competition by 2027; another in 2028; four more in 2029; and another in 2030.¹ FDA has already approved generics for five of these products.

3. Real-world test of “commercial spillover”?

Most of the products targeted have predominantly commercial populations (i.e., most utilization is among commercial, rather than Medicare, patients). In fact, outside a subset of the four oncology products, all of them have a majority of their utilization in the commercial-age population. Whether we will see much “spillover” into the commercial channel of any true price concessions achieved by IRA, including MFP, has been a topic of much interest. This set of products skews more commercial and thus offers scope to answer that question. Of course, a lot depends on the extent of true (rather than nominal) price concessions, i.e. “negotiated” list price reductions additional to prevailing rebates.

4. Medicare Part B, it is your turn next.

With the second set of drugs slated for MFP negotiations announced, we now know the full set of drugs selected in the ‘Part D only’ years of the program. In one year, the program will be opened to include Part B drugs as well. These medical benefit brands are likely to have fewer existing price concessions than their pharmacy benefit counterparts. Details on implementation within the buy-and-bill environment are also expected in the coming year, which may be intertwined with any 340B reforms that may also be considered by the Federal government. Experiences of pharmacies with the Medicare Transaction Facilitator (MTF) may be informative, as manufacturers navigate their obligations to provide paybacks to dispensing entities in a timely manner. Any cash flow challenges faced by pharmacies or providers as a result of MFP implementation are likely to raise the ire of legislators, especially in an environment where pharmacy closures are already making national headlines. In addition to evaluating the extent to which the MFP program translates to actual savings for taxpayers, it will be important to monitor how changes to cash flows impact critical participants in the dispensing and delivery value chain.

5. Taxing foreign countries?

During the first Trump administration, there was considerable policy attention to discrepancies between U.S. prices and prices in other industrialized countries and the associated perception that other countries were “unfairly” free-riding on U.S. “subsidization” of innovation. This resulted in policies being announced, albeit not implemented, to address this “imbalance”, such as the “International Pricing Index” and associated “Most Favored Nation” model designed to lower the cost of Part B drugs. Given the current policy momentum around using trade policy to achieve both domestic and foreign policy objectives, and continued signs of policy concern at “unfair” U.S. “subsidization”, it is possible that we will see efforts (e.g., linked to threats of increased tariffs) to induce foreign governments to alter current drug pricing and reimbursement approaches with the aim of increasing ex-U.S. drug prices.

Conclusion

As we noted last August, although the Biden Administration made much of the list price reductions arising from the initial set of MFP “negotiations”, true savings were more modest, since almost all the products in play were already subject to large discounts. Relative to those discounts, and relative to the MFP discount floors set by IRA, “negotiated” discounts were incremental.

That was then, and this is now – and we now have a new administration at the reins. It will be fascinating to see how the near-term evolution of IRA MFP plays out. Will we see more aggressive cost reductions relative to status quo rebates, as the higher proportion of oncology products in play may suggest?

Looking further ahead, what will we see from MFP “negotiations” in future rounds, as Part B products (with lower existing discounts and thus higher cost-savings opportunities) enter the picture? And how will the Trump administration prioritize political wins from large but largely symbolic list price reductions vs. efforts to more aggressively manage costs?

References:

1 pharsight.greyb.com; drugs.com; drugpatentwatch.com; manufacturer websites

Authors:

Matthew Barrett, Mary Fletcher-Louis, Monica Martin De Bustamante, Maximilian Hunt and Olivia Gugliemini