Updated CMS guidance for IRA maximum fair price (MFP) – Healthcare Economist

CMS launched a orientation on June 30, 2023 providing additional details on how the maximum fair price (MFP) will be calculated. The document also has nearly 100 pages of public comment. Below is a summary of some key points. Most interestingly, CMS is taking a ‘reference price’ approach to setting MFPs.

• MFP Configuration with Reference Pricing. “CMS will use Part D net prices (‘net price(s)’) and/or ASP(s) [average sales price] of the therapeutic alternative(s).” CMS says it will consider adjustments based on other factors later, but it appears the reference price is the primary means of setting MFPs. CMS said it will “take a qualitative approach” to adjust the initial negotiation price based on the unique characteristics of the drug and its therapeutic alternatives. Also, please note that CMS will consider the prices of generic and biosimilar products in the package of therapeutic alternatives. If there are no therapeutic alternatives, CMS will consider an initial negotiation price based on the FSS or “Big Four Agency”66 price (“Big Four price”).
• No use of QALY. CMS explicitly stated that it would not use quality-adjusted life years (QALYs) as part of MFP. What will they consider? Outcomes such as cure, survival, progression-free survival, morbidity improvement, symptom improvement, or patient-reported outcomes could be considered.
• Impacts on productivity. CMS said it will include productivity impacts for patients, but is not considering the productivity impacts of a treatment on caregivers.
• Caregiver perspective. CMS said that “…they may also consider the perspective of the caregiver to the extent that it directly reflects on the experience or relevant outcomes of the patient taking the selected medication.” It is not clear how the caregiver burden would be accounted for if only this is relevant to the patient taking the drug.
• Availability of generic drugs. When generics or biosimilars are available, MFP may not be relevant. CMS stated that they will use Prescription Drug Event (PDE) and Average Manufacturer Price (AMP) data to inform this decision.
• Orphan drug designation determined by FDA, not CMS. CMS will not consider withdrawn orphan designations or withdrawn approvals as a disqualification of a drug from MFP’s orphan drug exclusion negotiation.
• Confidentiality of the data during the negotiation. CMS will not publicly discuss ongoing negotiations prior to the publication of the MFP explanation unless a major manufacturer publicly discloses information about the negotiation process.
• Public explanation of MFP. CMS will publish an explanation of how the MFP was derived by March 1 of each year before the MFP becomes effective.
• Using clinical effectiveness and cost-effectiveness to determine MFP. CMS stated: “CMS reaffirmed that No [emphasis mine]use evidence from comparative clinical effectiveness research in a way that treats prolonging the life of an elderly, disabled, or terminally ill person as of less value than prolonging the life of a younger, nondisabled, or without a terminal illness. CMS also clarified that, for applicability of the initial price in the year 2026, it will review profitability measures and studies using those measures to determine if the measure used can be considered in accordance with section 1194(e)(2) of the Law. However, while such measures may be considered, they will be No [emphasis mine] be used to adjust the initial offer if the measure does not provide relevant information or is not permitted under section 1194(e)(2) of the Act and section 1182(e) of the Act.”
• Unmet medical need. CMS will consider a drug to have an unmet medical need if “no other treatment options exist or existing treatments do not adequately address the disease or condition.” This determination will be evaluated separately for each indication. The CMS approach will be informed by FDA Guidance.
• Manufacturer-specific data. CMS changed the large amount of data manufacturers are expected to submit.

The data points that CMS will consider to make adjustments to MFP beyond the reference price will include:

1. Manufacturer’s R&D costs. If a major manufacturer has not recovered its research and development costs, CMS may consider adjusting the preliminary price upwards. Conversely, if a major manufacturer has recovered its research and development costs, CMS may consider adjusting the preliminary price downward or not at all.
2. Current unit costs of drug production and distribution. CMS may consider adjusting the preliminary price downward if production and distribution unit costs are lower than the preliminary price, or upward if production and distribution unit costs are higher than the preliminary price.
3. Prior federal financial support for novel drug discovery and therapeutic development.. CMS may consider adjusting the preliminary price downward if federal funds were received for drug discovery and development. It’s unclear how this would work, since most drugs, at least in the basic science phase, received some support from federal sources, albeit indirectly.
4. Data on pending and approved patent applications or exclusivities recognized by the FDA, and applications and approvals under section 505(c) of the FD&C Act or section 351(a) of the PHS Act for the drug. If there are no future competitive drugs on the market, that could affect CMS’s designation that the drug will continue to fill an unmet medical need.
5. Market data and revenue and sales volume data for the drug in the United States. If the average commercial net price is lower than the preliminary price, CMS may consider adjusting the preliminary price downward. If the average commercial net price is higher than the preliminary price, CMS may consider adjusting the preliminary price upwards.

The complete CMS guide is available here.