CMS’ Bold Move to Establish a "Maximum Fair Price" for Medicare Drugs

Recently, the Centers for Medicare & Medicaid Services (CMS) announced the first ten drugs, all falling under Medicare Part D, to undergo price negotiations directly between manufacturers and CMS. Three of the ten are specialty drugs—Enbrel, Imbruvica, and Stelara. The objective? To determine a new “maximum fair price” (MFP) for these drugs under Medicare.

The initiative stems from parts of the Inflation Reduction Act aimed at lowering the cost of prescription drugs, with price negotiations set for 2023 and 2024 and new pricing active by 2026. CMS also shared future plans to negotiate pricing for 15 additional Part D drugs by 2027, 15 more under Part B and/or D for 2028, and 20 under Part B and/or D for 2029. 

Pharmaceutical companies whose drugs are up for negotiation have a decision to make: to participate or not. They have until October 1, 2023, to decide.

There is much speculation on how drug manufacturers will respond, the implications for biosimilar development, and how pharmacies will operationalize this new MFP acquisition price.  

An important aspect to consider is the ripple effect this might have on the way commercial plans evaluate and set reimbursement. If the negotiated MFP for Part D drugs is notably lower than existing rates – which is what CMS anticipates – there may be pressure from commercial plans on specialty pharmacies to push commercial rates closer to those for Medicare.  

This impact is likely more significant on Part B, as there has not been explicit guidance on how/whether the MFP will be excluded from the Average Sales Price (ASP) calculation – which is the primary reimbursement basis for commercial plans. A drastic decrease in ASP might destabilize the financial environment for physicians and specialty pharmacies, making some of their offerings economically unviable. 

The implications from this initiative could be vast, and all eyes are on how this unfolds in the coming years.

A fact sheet on the drugs selected for the Medicare Drug Price Negotiation Program is available here.