Unpacking the CMS Guidance on Drug Negotiation, Part 2

[SPEAKERS: Fred Goldstein, Melissa Andel]

Fred Goldstein  00:01 

Hello, and welcome to the AMCP Podcast Series-Listen Up as we take a deep dive into the challenges, trends and opportunities in managed care pharmacy. Follow the show's social hashtag AMCP Listen Up. And to learn more about AMCP Visit amcp.org. I'm your host, Fred Goldstein. On today's show, my guest is Melissa Andel principal and co-founder of Common Health Solutions. Welcome, Melissa. 

Melissa Andel  00:29 

Thanks for having me. 

Fred Goldstein  00:30 

It's fantastic to get you back on on episode two in this and looking at the Medicare ability to negotiate drug prices. So why don't we continue our conversation and talk about some other insights that Part D plan sponsors need to consider regarding the coverage requirements for selected drugs? 

Melissa Andel  00:46 

Yeah, that's a great question. So everybody's been focused, of course, on the actual price negotiation for the selected drugs, how will the drugs be selected, what drugs will be selected, and what will their price be? But another interesting requirement in the IRA that's sort of been flying under the radar is the requirement that all Part D plans cover all drugs with a negotiated price? I think the concept is pretty simple. Your guess if you're a manufacturer with a selected drug, you are going to be required to negotiate likely a lower price for Medicare Part D than what you're currently paying. But in exchange for that, all of the Part D plans are going to be required to cover your drug. But the thing is, is that the inflation Reduction Act only mentions the coverage requirement, there is no additional detail as to what that coverage means. In the guidance that came out in March, CMS acknowledges that this requirement does exist. But they didn't give any additional details as to what the agency is thinking about here and what they're going to expect from Part D plans. When it comes to covering these drugs. We do, of course, have some sort of precedent for required coverage in part D, with the six protected therapeutic classes, where plans are required to cover all or substantially all products within those six therapeutic classes. They are allowed, though, to use utilization management on those products. So I think there is an assumption here that plans will be able to use utilization management with these products, we just don't know for sure if that's how it's going to work. And unfortunately, the guidance isn't giving us any more hints at where the agency is leaning on this. I will say for this first round of negotiation in 2026, you know, something to look at? We do know or we assume that both Eliquis and Xarelto, which have consistently been ranked, I believe number one and number three, in total Part D spending for several years now. They're in the same class. So if they we expect that they're both going to be selected for negotiation, which means that it's likely that sponsors are going to have to cover both drugs. W will be able to use utilization management with these products, we just don't know for sure if that's how it's going to work. And unfortunately, the guidance isn't giving us any more hints at where the agency is leaning on this. I will say for this first round of negotiation in 2026, you know, something to look at? We do know or we assume that both Eliquis and Xarelto, which have consistently been ranked, I believe number one and number three, in total Part D spending for several years now. They're in the same class. So if we expect that they're both going to be selected for negotiation, which means that it's likely that sponsors are going to have to cover both drugs. We think? We don't know. And so then I think we shift to after the negotiation and publishing of the maximum fair price. Once we move to the coverage requirement, I think it's reasonable to assume that plan sponsors are going to be asking for additional rebates from the manufacturers of these products in order to somehow sort them on a formulary placed them on a formulary prefer one over the other. How is that going to work? Again, this all assumes that CMS is going to allow plans to do that and to prefer one over the other. Again, this is all hypothetical. We don't have any hints as to how CMS is thinking about this, but definitely something for 2026 especially because we do have those two huge drugs in the same class, that everybody's expecting are going to be selected. How is this going to work on the plan side and how our plans going to react to this? And as I mentioned in the first episode, um, remember the ceiling price for these products is tied to the non federal average manufacturer price. So, to the extent that these manufacturers of these products, especially high Part D exposure, versus the commercial market; to the extent that these manufacturers are possibly negotiating aggressively on the Part D book of business any way more aggressively than they're negotiating rebates on the commercial book of business? What is that negotiated price that gets published? How does that compare to the net prices that the Part D plans are already paying for these products today? Is there a possibility that the published negotiated price is going to be somewhat close to the actual net price for these products today? And so are the manufacturers then going to be expected to do additional rebating on top of that, in order to secure a preferential formulary placement? I think it's really interesting, of course, a lot of unknowns, because we don't know what the current rebate structure on these products look like. We don't know how the negotiation process is going to play out and what that final negotiated price is going to look like. But these are like the next step. Right? So how does the negotiated price compare to the net price that the plans are currently paying for these products. And then if you get into a situation because of this coverage requirement, are the plan is going to be going back to the manufacturers and asking for additional rebates on top of the negotiated price to secure preferential formulary placement and for the products to protect market share, essentially. 

Fred Goldstein  06:59 

So this could potentially place the plans in a different negotiating position, that may give them a little more oomph in their negotiations to bring that price even lower you think, 

Melissa Andel  07:11 

I think possibly, right? Then, does that have ripple effects for the drugs list price on the commercial market, as well, and what happens for the commercial plans when this goes into place? I think it's interesting, because we have the example of insulins there's been a lot of great reports in 2021, the Senate Finance Committee released an in depth report on insulin pricing and rebates, it really laid out the direct link between pressure for manufacturers to continue giving bigger and bigger rebates to PBMs and plans in order to secure formulary placement. And then that products WAC or list price, especially in the commercial market. So as we start thinking about the potential unintended consequences, or what starts happening, because nothing with Part D happens in a vacuum, right? So if you have a drug that has a negotiated price in Part D, and then perhaps layer on top this coverage requirement, that give plans. So now the manufacturer is not only negotiating with the government, it's also negotiating with the Part D plans in order to maintain market share. And then what are the consequences? What are they going to need to do in their non Medicare book of business? Is there going to be looking to make up those revenues somewhere? And yes, we have the inflation penalty rebates. But remember, those only apply to Medicare. I'm not sure how big of a burden those are going to be when we start thinking about the commercial book of business. So it will be interesting to start thinking through. It's not just that first step. It's the second, third and fourth layer of what happens after these prices get out into the market. 

Fred Goldstein  09:25 

Yeah, fascinating things to start pondering as this information continues to come out. So let's talk a little bit about what are the potential impacts on generics and biosimilars and their launches in the future? 

Melissa Andel  09:36 

I think that this is also interesting as well. We talked a little bit about in the first episode about how the inflation Reduction Act, of course, exempts a product from negotiation if there's a generic or biosimilar alternative available. And so I do think that the IRA has the potential to change the way both brand or reference manufacturers, and generic and biosimilar manufacturers approach patent litigation and settlement strategy overall. And I touched on this a little bit in this session that I presented at AMCP 2023 in San Antonio. But when you look at the list of the top 10 drugs by Part D spending, many of the products on those on that list are beyond the market exclusivity date, but they don't have generic or biosimilar competition. And usually the reason why is because of a patent settlement agreement that includes a delayed generic or biosimilar launch as part of the settlement agreement. So I do think that for a brand or reference manufacturer, I think a question becomes from here on out, when they're looking forward, it looks like now you kind of have a choice, you can settle, perhaps a patent settlement agreement, and allow a generic or biosimilar, to launch and you can compete against a generic or a biosimilar. And that is a market in which you are probably more comfortable, you have modeling to account for that market, it's a little bit more predictable, most likely, your alternative pathway is to not reach a settlement with a generic or biosimilar. And then that puts you on the road to government negotiation. So I think the first decision point or first potential decision point for a brand or reference manufacturer is would I rather compete against a generic or biosimilar in the free market? or would I rather compete or go with the government and end up having a negotiated price for my product? That may be a little bit longer market protection? And it's likely that that answer, that manufacturers won't be able to answer that question, until we start to see what these negotiated prices look like. From the generic or biosimilar perspective, from that manufacturers perspective, their modeling and assumptions are also going to change I think, because now they're thinking about, well, if when I launch, that product has a negotiated price. And so then maybe the price for the drug in the market, when I want is going to be lower than I was expecting or anticipating it to be, then does the return on my investment, so to speak, of undertaking this patent litigation, diminish somewhat? If that price ceiling is lower than what you thought it was otherwise going to be an unregulated market? Then, is there sort of a smaller piece of the pie then available? And I don't think that that's going to influence necessarily your first or second, or third manufacturers from getting into a market. But I do wonder if it does act as a disincentive for maybe the fourth, fifth or sixth manufacturers from getting into that market? Does it damper the market, just enough that maybe on the margins, instead of four or five options, we have three or four. And we do know that where we really start to see the prices drop for generic drugs, the prices that we typically associate in a generic drug market, those price drops happen when we get to about six manufacturers, that's kind of the magic number. That's where we get those 90% price cuts. And so one of the things I'm going to be looking for is, does the IRA sort of push that number down, and now maybe instead of six or seven, like I was saying we get four or five. These are very valuable molecules. So we're we know we're gonna get one or two and three, but it's those subsequent market and trends that I'm curious about. The guidance also talks about the Inflation Reduction Act does allow CMS to exclude a biologic from negotiation if they think that there is a high likelihood that a biosimilar will launch in the next two years. And high likelihood is the standard included in the statute. And it's up to CMS to determine what high likelihood means. And in the guidance, CMS is proposing that they will not consider a delay request from a biosimilar. manufacturer. So the onus is on the biosimilar manufacturer to initiate a delay request, under this exception process. And CMS is proposing that if a manufacturer is still in active litigation at the time that the delay request is submitted, that CMS will not consider that a high likelihood that that litigation will be resolved and the biosimilar will be able to launch in the next two years. And why that's important is because of the timing of the delay request. If we back up, you know, the calendar that you spoke about the beginning of the first episode for 2026, the delay requests for biosimilars need to be in, I believe, by mid May of this year. So we're talking about for 2026. If you're a biosimilar in May of 2023, and you're still in active litigation, CMS is proposing that they will not consider your request for a delay. If that ends up being final. I will say this, it technically this guidance is still proposed. So if that ends up being the way that CMS approaches this, another thing to think about with respect to biologics is that it really puts the reference manufacturer then in the driver's seat with these patent challenges, because then they may or may not have an incentive to sort of drag out the patent litigation so that it's still active when those delay requests would be required. And is that going to be enough to prevent a biosimilar from launching or from being successful in requesting a delay. Now, that also is predicated on the fact that the reference manufacturer has decided that they would rather go with government negotiation over biosimilar competition. So we'll see. And then, when we think about all of the decisions that manufacturers in the generic and biosimilar market have to make when doing, of course, at risk launches. In the past, we've had several biosimilar manufacturers that have launched their products, while litigation has been ongoing. So from a biosimilar manufacturer, if that's not enough to delay your negotiation, how is that further impacting your decision and your strategy with respect to the patent settlement agreements, and what you're willing to challenge in court. And so I do think there is a potential for this to sort of change the paradigm a little bit in the generic and biosimilar world. And, you know, as you know, you can't selectively launch a generic or biosimilar in just a commercial market. You want it in the country as a whole. And so to the extent that the Medicare Part D and Inflation Reduction Act is going to be driving some of these decisions, what are the downstream impacts on just broader patient access to these generic and biosimilar products, and future launch plans and strategies? Again, you know, I don't think anything is set in stone. But these are just things I challenge people to start thinking about these potential implications of the legislation, as well as the guidance that has come out and how there can be further downstream impacts that go beyond Medicare Part D, and just the 10 selected drugs, for example. 

Fred Goldstein  19:28 

Well, thank you so much for Melissa for joining us fantastic insights, a lot to think about, and we're just gonna have to keep monitoring this and keep up with it. Really appreciate you coming on the show. 

Melissa Andel  19:38 

Thanks again for having me. 

Fred Goldstein  19:41 

And thank you for joining us today. If you liked the show, you can find all our episodes at amcp.org/podcast on our show page at healthcarenowradio.com or on your favorite listening platform by searching healthcare now radio. You can follow our shows social hashtag at AMCP Listen up. And don't forget to share, like and follow @AMCPorg on LinkedIn, Twitter, Instagram and Facebook. I'm Fred Goldstein for AMCP. Until next time.