Medicare Part D Drug Price Negotiation Update

Overview

Health & Human Services announced on August 15 that the Center for Medicare and Medicaid Services (CMS) reached final agreements for new and lower drug prices for the initial ten Medicare Part D drugs selected for price negotiation as part of the Inflation Reduction Act (IRA).  The Medicare Part D drugs selected for the first round of negotiation were first announced in August 2023 and CMS has conducted subsequent negotiations with affected manufacturers to establish a maximum fair price, or MFP for each of the respective brand drugs.

Criteria used to establish a selected drug MFP include but are not limited to include brand drug cost, brand drug utilization, therapeutic class alternatives, time on market, R&D costs, production costs, prior federal financial support, comparative effectiveness, and how the drug addresses unmet medical need. 

The Biden administration stated that new MFP prices will save taxpayers $6 billion in 2026 and patients will see about $1.5 billion in out-of-pocket savings.  MFP prices will be effective as of January 1, 2026, and are specific to the Medicare Part D line of business. 

Biopharmaceutical manufacturers have voiced their concerns on the potential impact of price negotiation on innovation.  While several manufacturers have noted their ability to successfully manage the financial impact of this first round of price negotiations in the short-term, it is unclear as to what the impact will be as additional brands will be eligible for price negotiation based on statutory requirements of the IRA.  Beyond the direct impact of price negotiation on specific brands, there will be a much broader indirect impact which will affect manufacturers of drugs not selected for price negotiation but are in the same therapeutic class as an MFP drug. 

Of note was the fact that 5 manufacturers did not reach an agreement with CMS until after the formal negotiation meetings were concluded; drug companies were compelled to accept the CMS final offer due to the threat of high excise taxes if an agreement was not reached.  Four prices offered by manufacturers were agreed to by CMS while the other was offered by CMS and accepted by the drug company.

Initial Top 10 Medicare Part D Drug Details

As seen in Figure 1 below, the average MFP discount rate across the ten brands selected for Part D price negotiation averaged 63%.  The range of MFP discount rates between brands was 38% – 79%. 

Figure 1.  Initial 10 Part D Drug MFP Price Discount by Brand

BluePath also evaluated how MFP pricing compared to discounts previously negotiated directly between biopharmaceutical manufacturers and Part D plan sponsors as seen in Figure 2 below.  In this case, MFP discount rates by brand were compared to 2022 Medicare Part D therapeutic class negotiated rebate levels as reported by MedPAC in the July 2024 edition of the MedPAC Data Book. 

Figure 2.  MFP Brand Discounts Contrasted with 2022 Therapeutic Class Discounts

MFP discount rates were compared to either the single therapeutic class rate or mid-point of the range as reported by MedPAC (e.g., Januvia’s 79% MFP discount was compared to the diabetes therapeutic class average of 50% while Enbrel’s 67% rate was compared to 25% as the autoimmune mid-point).  The limitation of this approach is that we cannot directly compare actual Part D brand discount rates with the MFP brand discount and there are differing timeframes to consider.  However, it does provide a directional perspective on MFP discount rates relative to previous price concession levels established as part of private negotiations between manufacturers and Part D plan sponsors. 

Given the limitations discussed above, it appears that MFP-negotiated discounts are directionally higher than those reported on a therapeutic class level in 2022.  Early winners in terms of limited incremental MFP rebate levels over existing agreements look to be BMS and Janssen in the anticoagulant therapeutic area. 

It is important to note that price negotiations conducted by HHS represent a significant difference in negotiation dynamics when compared with private negotiations.  This is partly due to the many statutory requirements included as part of the IRA legislation which compel manufacturers to participate, and the leverage of a single payer as opposed to multiple payer negotiation. 

Implications

While manufacturers directly involved in price negotiations must manage the net revenue impact of price negotiation in 2026, the far more comprehensive impact is on competitors in the same therapeutic class as an MSA drug.  For manufacturers who may be exposed to the indirect impact of price negotiation, there are currently many unknown factors given the early stages of the IRA legislation.  However, affected manufacturers should consider evaluating market access scenarios such as those seen below which could begin to play out in advance of the 2026 price effective year:

• Generics are often priced at levels 80 – 85% below that of the innovator brand; discounts for the initial 10 drugs selected for price negotiation average 63%.  Thus, competitors to MFP drugs may see payers respond as they would normally do in the case where a brand has lost patent protection. This could include changes in Medicare Part D utilization management which such as brand exclusion or the introduction of new step-edits
• Payers may leverage non-MFP manufacturers for further price concessions in the Medicare Part D line of business based on MFP drug reference price points in order to maintain existing Part D access
• Alternatively, payers may no longer be tied to existing manufacturer contract restrictions for utilization management criteria which offers new opportunity for competitors in Medicare Part D
• Part D plan sponsors may attempt to reference MFP pricing for leverage in their commercial line of business
• Market-leading MFP brands may be able to incrementally build on existing Medicare Part D market positions due to universal access; this could impact demand and related financial forecasts for drugs with MFP competition

CMS will be identifying additional drugs for Medicare price negotiation over time.  An overview of the growth of price-negotiation eligible drugs is seen below:

• 2027: 15 additional Part D drugs
• 2028: 15 Medicare Part B and D drugs
• 2029: 20 Medicare Part B and D drugs

The expansion of Medicare price negotiation and expected indirect impact of these decisions suggest manufacturers will need to be diligent in market access planning and brand forecasting.  BluePath has extensive market access experience and Medicare database assets which can help manufacturers navigate the many unknowns associated with IRA-related price negotiation and Medicare Part D benefit design changes. 

Questions or inquiries on Medicare? Please contact us at info@bluepathsolutions.com