Pharma Companies Unappeased by Medicare Price Negotiation Revamp

The Medicare agency’s adjustments to its drug price negotiation program are looking unlikely to fend off industry legal challenges aimed at toppling it.

The Centers for Medicare & Medicaid Services released its highly anticipated plan for setting prescription drugs prices June 30 after sifting through 7,500 comments. The Inflation Reduction Act gave Medicare, for the first time, the authority to negotiate the prices of drugs it spends the most on.

The March version of the guidance would have required drug companies to destroy all Medicare data they received during the negotiation period, but the final guidance removes that requirement.

The CMS said the change aims to increase transparency while providing companies with greater power to decide what they want to share with the public.

However, attorneys said the modest changes to the guidance won’t stop others from filing new lawsuits.

“I do not expect that the final guidance will quell the types of legal concerns that prompted recent litigation,” said Margaux Hall, a partner in Ropes & Gray LLP’s health-care practice.

Specific Drugs to Be Named

The CMS must publish by Sept. 1 the first 10 Part D drugs that will face government-negotiated prices starting in 2026, and the June guidance lays out the process for selecting those.

The program already has faced lawsuits from Merck & Co. Bristol Myers Squibb Co., the US Chamber of Commerce and the brand-name drug industry trade group, the Pharmaceutical Research and Manufacturers of America. The groups argue the program unconstitutionally grants the federal government unprecedented authority that could harm future drug innovation—and patients.

“We believe CMS guidance cannot correct constitutional flaws in the Inflation Reduction Act, including the program that requires pharmaceutical companies like Bristol Myers Squibb, under the threat of significant penalties, to sell innovative medicines at government-dictated prices,” a Bristol Myers Squibb spokesperson said July 5.

The CMS in the final guidance pushes back on arguments drug companies used in their lawsuits, including an alleged violation of the due process clause related to the requirement that companies charge less for products without greater opportunities to challenge the prices ultimately set by Medicare.

“The revised guidance isn’t going to make any of these lawsuits go away. It does demonstrate that the agency is sensitive and responsive to criticisms, including some of those that are appearing in the various complaints,” said Rebecca Wolitz, an assistant professor at Ohio State University who has written about legal strategies and drug pricing.

The CMS said it’s acting well within the authority granted by Congress to implement the program under a tight deadline, which attorneys told Bloomberg Law makes the agency more vulnerable to lawsuits.

“CMS has retained considerable discretion across various areas of importance to program implementation, and this is likely to draw concerns,” Hall said.

Guidance allows the government to move faster than rulemaking, which the CMS said was necessary to roll out a new program in less than a year.

By comparison, the agency had two years to implement the Part D benefit under the Medicare Modernization Act, the CMS administrator at the time, Mark B. McClellan, said.

Clear Review Standards Needed

While the agency removed previously proposed confidentiality requirements, and plans to publish the comments it received this month, “neither is likely to lessen litigation running parallel with implementation,” said Duane Wright, a senior research analyst at Bloomberg Intelligence.

The CMS says that it will assess whether a generic or biosimilar is marketed based on an assessment of “a totality of the circumstances,” including prescription drug event data and average manufacturer price data reported by drug companies.

But this explanation lacks “clear standards for its review” of each product potentially subject to negotiations, Hall said.

The CMS also stood by its definition of a “qualifying single source drug” to include all of the drug’s various dosage forms and strengths, including those that may be subject to different FDA-approved applications.

“This was a topic that raised many legal and policy concerns from stakeholders, and those concerns remain,” Hall said.

Negotiation, but No Appeal

The final guidance “leaves the agency with broad discretion and power in setting the price of medicines,” said Tess Cameron, a principal on the investment team at RA Capital Management. The law bars companies from appealing Medicare’s pricing decision, although the agency said it will allow up to three negotiation meetings.

“Biotech innovators, patients, and the public continue to have no mechanism for holding CMS accountable for setting a responsible price that reflects the benefits a medicine brings to society and preserves incentives investors need to see to keep funding” research and development, Cameron said.

PhRMA said transparency and accountability concerns remain. The CMS “has not committed to stating what evidence they intend to use in evaluating a medicine and setting its price” in the final guidance.

And “while there will be ‘listening sessions’ with patients in the fall of 2023, it’s not clear how much patients and providers will truly be able to affect the process of price setting, or how much CMS will share with stakeholders,” PhRMA said in a June 30 statement.

But Merith Basey, executive director of Patients for Affordable Drugs Now, countered that the CMS has made clear it’s willing “to pay more for high quality, innovative drugs that meet unmet public health needs and that will better serve patients.”

“Drugs don’t work if people can’t afford them, and these reforms are long overdue and must be protected,” she added.

CMS on Defense

Stacie B. Dusetzina, a health policy professor at Vanderbilt University whose specialties include prescription drug costs, said the small number of changes since the initial guidance “indicates they felt they had the details pretty spot on on the first round.”

Dusetzina expects the agency to clarify the guidance even further between now and when drug selection occurs this fall to mitigate further the agency’s liability.

“CMS is going to continue to work to refine the details, so the rules are as crystal clear as possible. Because anything that is unclear or somewhat arbitrary, or leaves up to judgment, opens them up obviously for more legal action,” Dusetzina said.

Wolitz said she expects an ongoing “tug of war” in the coming months with the agency responding to complaints in the lawsuit, and plaintiffs revising accordingly. “This is just an incredibly politically contentious issue. And I’m not going to be surprised if we eventually see the case going to the Supreme Court.”

The CMS has repeatedly said it will stand by the negotiation program in the face of legal challenges.

“We feel that the law is on our side,” CMS Administrator Chiquita Brooks-LaSure said at a press briefing.