Medicare’s plans to finalize its process for selecting drugs eligible for government price negotiations without public input opens up another potential avenue for lawsuits from the pharmaceutical industry, attorneys say.
The Centers for Medicare & Medicaid Services gave the public until April 14 to submit comments on initial guidance detailing how it plans to implement the Inflation Reduction Act for the drugs selected for negotiation starting in 2026.
Unlike with most parts of the guidance, the CMS said it wouldn’t accept comments on how it will select potential drugs eligible for negotiation. This is to help the CMS “be able to, by the law, select drugs by Sept. 1,” when the agency must publish the first 10 Part D products facing negotiated prices in 2026, CMS Deputy Administrator and Center for Medicare Director Meena Seshamani said in an interview.
But top trade groups like the Pharmaceutical Research and Manufacturers of America and the Biotechnology Innovation Organization used the 30-day comment period to air their grievances on the agency’s drug selection plans.
They particularly took issue with the CMS including within its definition of a “qualifying single source drug” all of the drug’s various dosage forms and strengths, including those that may be subject to different FDA-approved applications.
Some analysts say the CMS is operating well within the law, and that the agency’s approach aims to prevent companies from reformulating drugs to extend patent protections and restrict competition.
But industry members and attorneys who counsel them say the guidance threatens the possibility for improvements on approved drugs, expanding the industry’s gripes with the drug pricing law that analysts have warned is certain to trigger litigation.
“The guidance may open a door to litigation, both because CMS declared certain sections to be final and because there are several issues on which the agency has strayed quite far from its statutory mandate,” said Eva Temkin, a partner at King & Spalding LLP and former associate chief counsel at the Food and Drug Administration.
The pharmaceutical industry is limited in its ability to challenge this part of the CMS’ implementation.
The IRA explicitly bars administrative or judicial review of areas like “determination of negotiation-eligible drugs” and “qualifying single source drugs.” Under the law, qualifying single source drugs include small molecule drugs approved at least seven years ago and biologic products approved at least 11 years prior. The CMS examines spending data and other information on these products to select the drugs that will face negotiated prices.
Despite the law’s limits on legal challenges, attorneys say industry could still attempt to argue that the CMS isn’t following the IRA, or that finalizing this component of implementation without feedback violates the due process clause of the US Constitution.
Lauren Neves, deputy vice president of policy and research at PhRMA, said in a press briefing Wednesday that the trade group is “exploring every potential avenue to fight back against this law given how problematic it is.” She cautioned, though, that the organization hasn’t “made any decisions at this time.”
“There’s a lot of space in between nothing” and the high bar of administrative or judicial review “for CMS to operate in, and we’ve seen in a lot of other programs where they’ve set up processes where the manufacturer can say, ‘Hey CMS, we think you got this wrong, we wanted to flag it for you,’” Neves added.
‘Pushing That Boundary’
Under the guidance, the CMS will include within a single source drug potentially eligible for price negotiations “all dosage forms and strengths of the drug with the same active moiety,” and for biologics “all dosage forms and strengths of the biological product with the same active ingredient.” This includes products subject to different product applications, according to the guidance.
“What that’s going to end up resulting in is when that list of 10 drugs comes out, we’re not going to see 10 products; we’ll see many, many more products,” said Chris Schott, a partner in Latham & Watkins’ health-care and life sciences practice, who advises pharmaceutical companies.
While Congress allowed the CMS to implement the law through guidance, the “overarching impression” from this initial memo is the agency “is pushing that boundary at every opportunity,” Schott said.
The definition laid out by the CMS “leaves no incentive for therapeutic advancement and will have significant, negative impacts on innovation for years to come,” BIO Chief Policy Officer John Murphy and Health Policy and Research Vice President Crystal Kuntz wrote in their comment letter to the agency.
Instead, BIO’s leaders argue, the CMS should distinguish products by individual applications. Using this approach “would avoid exacerbating the disincentive to develop next-generation therapies inherent in the Negotiation Program to the point of suffocating all such innovation, to the detriment of patients in need,” they wrote.
The approach the CMS plans to take in selecting drugs “just totally wipes out any incentive for us to make older drugs better and develop new or better forms to help patients,” Neves said in Wednesday’s press briefing.
Republican leaders in Congress voice similar concerns in their own letter to the CMS, calling the approach “an apparent effort to subject as many medications as possible to the IRA’s price-setting program.”
“This approach will blunt incentives for meaningful product improvements, in addition to punishing products that treat more than one disease,” wrote Sen.
Finalizing this section of the guidance without accepting public input “denies the Agency the expertise of all stakeholders and raises serious legal questions under” the Social Security Act “and the Due Process Clause,” PhRMA Executive Vice Presidents Jenny Bryant and James C. Stansel wrote in a separate letter to the CMS.
Medicare’s Defense
Despite the pushback from industry and Republicans, the CMS and some analysts say the agency is operating within the authority granted to it by Congress under the IRA.
“With our timeline, we have to put out this is how we are defining a drug, and that is why that section does not have comments,” Seshamani told Bloomberg Law.
The approach laid out by the CMS “was the correct interpretation,” and “was the only interpretation on a lot of levels,” said Anna Kaltenboeck, principal and head of drug pricing practice at ATI Advisory, who worked as a senior health adviser for the Senate Finance Committee when the IRA was developed.
“There’s so many drugs out there” that have multiple FDA-approved applications, because manufacturers attempt “to gain patent protection and exclusivity protections,” Kaltenboeck said. “Manufacturers have managed to put into the market multiple drugs that are really the same drug where there can’t be any generic competition for that.”
If the CMS were to use an alternative approach such as an application-based framework, this would create a set of substitute drugs not subject to government-negotiated maximum fair prices, Kaltenboeck said.
“I don’t doubt” that industry will attempt to challenge the CMS’ approach, but “that’s a really high burden of proof, and you have to show harm, you have to show that it’s a misinterpretation of the law here, and I think it’s going to be very difficult for them to mount a case,” Kaltenboeck said.
Transparency, Engagement
The CMS plans to revise other areas of the draft guidance and release a finalized version this summer. As the agency works to implement the drug price negotiations and other components of the IRA, including rebates from drug manufacturers that raise prices faster than inflation, Seshamani stressed that transparency and collaboration with industry and other stakeholders remains one of the agency’s top priorities.
“We are engaging with everybody involved to understand through the expertise, perspectives, data of everybody involved, from manufacturers, to plans, to providers, and importantly, patient and consumer groups so that we can implement this law in a thoughtful way,” Seshamani said.
The agency has been holding monthly technical calls with drug manufacturers and health plans, as well as listening sessions and other meetings with other stakeholders to help inform the agency’s approach to implementing its new, sweeping drug pricing authorities.
Pursuing guidance instead of rulemaking in the early years of implementation “enables us the opportunity to be able to iterate and to do this first round,” and “we will continue to work with everybody involved in this space as we evaluate what we will do in future years,” Seshamani said.
Jonathan Blum, the agency’s principal deputy administrator and chief operating officer, has previously said rulemaking is on the table for later years, noting “it is generally the process” for the CMS to “codify changes over time.”
In implementing the IRA, the CMS is looking to see “how can we make sure that we are improving access and increasing affordability to the therapies that people need to improve their health,” Seshamani said.
“You can have the most wonderful, innovative therapy, and if people can’t afford it and can’t access it then it’s not going to be able to deliver on the promise that we all want,” she said.
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