Drug Price Negotiation Deadlines Expose Medicare to Litigation

The Medicare agency risks legal challenges from the pharmaceutical industry as it scrambles to meet rapidly approaching deadlines in President Joe Biden’s landmark drug pricing law, attorneys say.

The timeline Congress set in the Inflation Reduction Act (Public Law 117-169) to begin negotiating certain drug prices are “tremendously tight” for the Centers for Medicare & Medicaid Services, said Jonathan Blum, the agency’s principal deputy administrator and chief operating officer. The agency has had to begin while still actively hiring economists, data analysts, and individuals with pharmaceutical industry experience to build out the agency’s new drug price negotiation team.

Industry sources say there’s anxiety among pharmaceutical companies about rushed work by the CMS in an attempt to meet Congress’ deadline, and legal observers have said it’s all but certain the CMS will see a legal challenge at some point.

The use of guidance instead of rulemaking to implement the drug price negotiations in the early years could prompt challenges from industry as a way to hold the agency accountable during implementation, attorneys who counsel the pharmaceutical industry say. Drugmakers will likely use legal action to demand answers from the CMS on implementation, including the agency’s processes for determining which drugs qualify for the law’s negotiation exemptions.

It’s “a potential vulnerability, especially for a program that is as sweeping in scope and is going to fundamentally overhaul the current course for Medicare reimbursement of drugs,” said Margaux Hall, a partner in the health care practice at Ropes & Gray LLP.

The CMS must publish on Sept. 1, 2023, the Medicare Part D drugs selected for negotiation starting in 2026. That means the agency will have just over a year from when the IRA was signed into law to determine the first pharmaceutical companies subject to the federal government’s new authority. Meanwhile, the CMS is also working on how to implement other changes from the IRA, including collecting rebates from certain drug manufacturers that raise prices on products faster than the rate of inflation.

Blum said at the Biopharma Congress on Feb. 13 that the CMS is on track thus far with the deadlines Congress has set. The CMS on Jan. 24 issued its first information collection request associated with the drug price negotiations. It calls for feedback on implementation of the law’s provision exempting small biotech companies’ products from government price negotiations until 2029.

The CMS plans to release initial guidance to industry this spring on topics like the agency’s plans for the offer and counteroffer process between Medicare and prescription drug companies, and the methodology for applying maximum fair prices.

‘Aggressive Timeline’

After the CMS announces the first 10 drugs subject to negotiations, it will have a year to negotiate with manufacturers before it publishes the maximum fair prices to take effect in 2026.

“It’s safe to say that it’s an aggressive timeline,” said Eva Temkin, a partner at King & Spalding LLP and a former Food and Drug Administration official.

Given the short time frame, the CMS has so far opted to plan out how it will implement negotiations by issuing guidance to industry, rather than going through the process of establishing binding, enforceable rules. Blum said rulemaking could come later, noting “it is generally the process” for the CMS to “codify changes over time” after initially issuing guidance.

Temkin said because of the time crunch, “there might be room for CMS to adopt interim policies and then develop longer-term strategies in a more deliberative way that has a notice and comment opportunity built in.”

But this is also “a statute that necessitates reimagining of whole business plans on the part of industry, and to have to do that without the full picture of what the regulatory regime will look like is also very difficult,” Temkin said.

The manufacturer agreements CMS issues for the drugs subject to negotiations is one area where it will be critically important for drugmakers to provide feedback, one industry source said. It’s also unclear what data the CMS will need to collect from industry to determine the maximum fair prices. Yet makers of the first 10 Part D drugs must sign manufacturer agreements by Oct. 1, 2023, and submit this manufacturer specific data by the following day, according to the CMS timeline.

Negotiation Exemptions

The drug industry could also challenge parts of the law if the criteria the CMS uses to implement certain negotiation exemptions or delays isn’t clear.

The law allows the government to delay negotiations for a biologic for up to two years if there’s a “high likelihood” that a biosimilar for the product will be approved by the FDA and marketed within two years. Because of this, drugs like AbbVie’s blockbuster anti-inflammatory treatment Humira won’t face government-negotiated prices. The first Humira biosimilar—Amgen Inc.‘s Amjevita—launched at the end of January, and at least seven additional biosimilars are expected to come to market later this year.

It’s essential that CMS clarify how it will measure the likelihood of the introduction of a product similar to a brand-name biologic, said Juliana M. Reed, executive director of the Biosimilars Forum. Otherwise, a high-cost drug could remain on the market even with no competition during that two-year period, she said.

“That coordination with FDA, and understanding the key checkpoints in the process where it’s clear that the product is going to be approved, those kinds of things would be helpful in clarifying,” said Meenakshi Datta, a partner at Sidley Austin LLP and global co-leader of the firm’s health-care practice.

The law also exempts from negotiation products from small biotech companies for price applicability years 2026 through 2028. Hall said it will be essential for the CMS to clarify the criteria and processes to implement this exemption.

“Depending upon the decision the agency reaches substantively, but also the process that the agency undertakes in order to reach those decisions, I think either or both of those decisions are likely to be scrutinized by stakeholders with folks wondering if the agency has exceeded its authority,” Hall said.

An Avenue for Litigation

The IRA bars administrative or judicial review of Medicare’s determination of negotiation-eligible drugs and the determination of maximum fair price. But attorneys say this doesn’t dispel the opportunity for legal challenges altogether.

The IRA allows the CMS to implement the drug pricing provisions through guidance. But this “process through which stakeholders will be able to engage and provide weigh-in appears to be different from the formal process that we would normally see under the Administrative Procedure Act in notice and comment rulemaking,” Hall said.

After the Medicare Modernization Act was enacted in 2003, the CMS took several years to write rules for the Part D prescription drug benefit. The agency officially began implementing the Part D program in 2006.

With the drug price negotiations, industry will look at guidance and ask, “Is the agency acting within the scope of its authority under the statute, or has it gone outside of the statute and proposed something that is not contemplated, or within the bounds of the statute?” Datta said.

Even amid tight deadlines and the threat of litigation, Hall said the process the CMS takes to negotiate prices with industry is likely to evolve over time.

“It’s going to be a living, breathing decision-making process,” Hall said.