Drugmaker Data, Price Negotiation Timeline Tee Up Fight With HHS

The pharmaceutical industry is being cornered into negotiating lower prices than it may see fit, with little recourse under newly proposed guidance by the Biden administration, industry analysts and legal experts say.

Collecting data from pharmaceutical giants and measuring product benefits are among the sore spots for industry in newly released guidance from the Centers for Medicare & Medicaid Services. Stakeholders have until April 14 to weigh in on the 91-page guidance, which provides the clearest window to date into how the government is approaching its new authority over the prices of some of Medicare’s highest-cost drugs.

The CMS is due to announce in September the first 10 Medicare Part D drugs subject to negotiations, a process that will begin in 2026. Yet pharmaceutical industry analysts and attorneys warn that there are a number of areas where drugmakers could push back on the negotiations. They note that stakeholders could leverage the agency’s notice and comment period to raise concerns, attempt to resist providing needed data for determining prices, and be prepared to defend to the CMS what they believe to be the best price for their medicines.

Industry representatives are watching closely how the CMS is analyzing a product’s clinical benefit and the data it’s requesting from drugmakers. They also are concerned about the number of meetings—up to three—that the CMS is offering to drugmakers to haggle over a product’s maximum fair price. That process is rife for complications, policy experts warn.

“It’s important to not lose sight of reality. Drugmakers are surely going to disagree with Medicare’s decisions, but Medicare has the authority to ultimately dictate these prices,” said Benedic Ippolito, a senior fellow in economic policy studies at the American Enterprise Institute.

“Whether they meet three times or a thousand, drugmakers have little recourse, so I don’t really see this resolving any fundamental disagreements about Medicare’s decisions,” Ippolito said.

‘As Low as It Wants’

President Joe Biden’s Health and Human Services Department’s sees the drug pricing negotiation program as a vehicle for fair prices for seniors and better competition.

Despite concerns among industry that the threat of negotiations will deter investors, the CMS believes “negotiation is a powerful tool that in addition to giving access to affordable medicines,” can encourage companies “to innovate to stay competitive,” Meena Seshamani, CMS deputy administrator and director of the Center for Medicare, said in a webinar Thursday.

“This is top of mind as we foster a negotiation process that encourages and supports innovation, while strengthening the Medicare program now and in the future,” Seshamani added.

Yet policy experts are concerned with just how far the CMS will go in trying to cut down on costs.

“So far we see nothing that limits how low CMS can go on price,” said Peter Kolchinsky, managing partner at RA Capital Management LP focusing on biotech. He said the Inflation Reduction Act—the law enacting the drug negotiation program—was “written with no floor to how low a price CMS can dictate.”

“CMS will have wide latitude in how it picks the framework by which it considers a drug’s value,” he said. “And so we have to assume that, as with a Ouija board, CMS will end up as low as it wants.”

And while the agency has offered 30 days for stakeholders to weigh in on its plan, “whether input from the outside will result in any constraints on how low CMS can go remains to be seen, but that seems wishful,” he said.

Data Protections

Under the CMS’ latest drug price negotiation timeline, the agency plans to propose and invite input in the coming months on its process for collecting data from manufacturers to help inform negotiations on the maximum fair price.

But “much of the data that the IRA calls for, and CMS intends to investigate, is confidential, proprietary information that, historically, has been closely guarded by manufacturers,” said Margaux Hall, a partner in Ropes & Gray LLP’s health-care practice.

“While the agency has set forth a general process to safeguard various information, I expect there will be concerns about the thoroughness of protections under this process,” Hall added.

The initial guidance from the CMS outlines that the agency plans to request from manufacturers data on the selected drug’s research and development costs, unit costs of production, any prior financial support from the federal government, revenue and sales volume data, among other information.

For the company-specific data the CMS receives, the agency plans “to implement a confidentiality policy that is consistent with existing requirements for protecting proprietary information,” according to the draft guidance.

The CMS added this information would also be protected from public disclosure under the Freedom of Information Act’s exemption for trade secrets and commercial or financial information.

However, some of that data the CMS wants will be met with “varying degrees of resistance,” from industry, said Antonio Ciaccia, CEO of Ohio-based drug pricing data firm 46brooklyn Research.

Some of that resistance will stem from “protecting what they will argue are trade secrets; others to obfuscate reality and undermine the price-setting process,” Ciaccia said.

Negotiating Price Limits

Before making an initial offer of a maximum fair price, the CMS plans to consider the selected drug’s clinical benefit, whether it fulfills an unmet medical need, and its impact on Medicare beneficiaries.

Part of measuring the drug’s clinical benefit will include comparisons to existing therapeutic alternatives. For this, the CMS said in its guidance that it intends to “review existing literature and real-world evidence, conduct internal analytics, and consult subject matter and clinical experts.”

The agency proposes the “consideration of historically less-rigorous data, such as surrogate endpoints and patient-reported experience, to compare the selected drug to the deemed therapeutic alternatives,” Hall said.

“This process—both its subjective and public participatory nature is likely to draw objections and concerns,” she added.

But the CMS’ planned analysis of how a selected drug fits in the existing clinical environment is important to consider, said Anna Kaltenboeck, principal and head of drug pricing practice at ATI Advisory.

They’re “informing themselves” on “anything that another payer would do as well when they go into a negotiation, like understanding what the alternatives are, how much they’re paying for those alternatives, understanding where this drug is different or similar to those alternatives and what it brings to patients,” Kaltenboeck said.

“That reflects that they’re coming into this with a negotiation mindset, not a price-setting mindset,” she added.

The CMS offers to meet with drug manufacturers either in person or virtually up to three times before both sides must come to a negotiated price. Analysts say there’s no reason why the two won’t reach an agreement in time, especially with manufacturers facing the threat of a massive excise tax for not complying.

But the initial guidance also lays out how much control the CMS has in shaping drug prices going forward, Ciaccia said.

“It’s hard to call it a negotiation when the federal government has so much leverage at the bargaining table,” he said.