Editor’s Note: This month, we offer updates on three significant topics. As always, if you have questions on any of the content found in this or previous market updates, please reach out to your IntegriChain Consulting Lead or consulting@integrichain.com and we would be happy to talk you through it.

Table of Contents:

1. IRA and CMS Updates and Impacts on Pharma – 10 Months Later
2. The Rise of Medical Benefit Contracting
3. New CMS Proposed Rule: CMS-2434-P

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IRA and CMS Updates and Impacts on Pharma – 10 Months Later

With the Inflation Reduction Act of 2022 (IRA) here to stay, we’ve got a few quick IRA updates around recent CMS guidance that expands on the original legislative text as well as some thoughts on what these changes may mean for pharmaceutical manufacturers. Over the past few months, CMS has steadily released guidance and solicited comments on some of the proposed solutions to facilitate different portions of the IRA requirements. Below are a few key updates.

Increased 340B Transparency

CMS has proposed to increase transparency in the identification of 340B discounted drugs sold within pharmacies by instituting a new requirement beginning 2024 whereby Medicare part D claims must indicate if the dispensed product was purchased under the 340B program. This should help both CMS and pharma manufacturers better identify 340B utilization to reduce their potential Part D inflation rebate liabilities in 2026.

Small Biotech Exemption Instructions

CMS released instructions for pharma manufacturers to apply for the Small Biotech Exemption to be withdrawn from the 2026 Part D drug price negotiations for the ten highest cost/spend drugs. For clarification, this was not an application for Specified or Specified Small Manufacturer treatment under the new Medicare Part D Redesign’s phase-in program. There has been no guidance on how or if manufacturers will confirm their phase-in eligibility at this time.

Additional Guidance

CMS continues to release additional guidance around the implementation and operationalization of various parts of the IRA, which are categorized and published within the CMS IRA Guidance Release.

Industry Perspectives & Manufacturer Concerns

The Medicare Part D Coverage Gap Redesign is having significant impacts on manufacturers’ estimated liabilities on both high- and low-priced products:

• Manufacturers with low-priced products are projected to see new utilization as a result of the lower threshold before manufacturer liability kicks in.
• Manufacturers with high-priced products are set to experience increased liability of patients who no longer pass through the ‘donut-hole.’

Medicare Part D utilization for moderate to high-priced drugs is projected to increase as the cost to beneficiaries is dramatically reduced by the implementation of the $2,000 out-of-pocket max:

• This change is expected to allow patients who currently are unable to bear the cost of high-priced medications due to the uncapped Catastrophic Coverage cost share (eliminated in 2024) to begin or renew their treatments.

How plans will respond to their increased cost coverage under the new Part D model is yet to be seen but is certainly expected:

• Not only will the plan’s cost share portion rise dramatically with the 2024 and 2025 changes, but for manufacturers eligible for the phase-in treatment, the plans are also expected to pick up the additional 9% and 19% savings in 2025.
• The perceived savings afforded by the phase-in treatment may be offset by plans making access to the formulary more expensive or difficult.

Launching at a higher price point may be a strategy utilized to combat the new limitations in place to combat inflation penalties. However, plans may begin favoring lower-priced products as their current tactic to push patients into catastrophic coverage, thus reducing the plans’ liability under the current cost share, is eliminated (75% in Initial Coverage Period vs. 15% in Catastrophic).

• Now that plans carry a cost share of 65% and 60% in the Initial Coverage Period and Catastrophic Coverage Period, respectively, they have more incentive to cover lower price products.
  

Recent IRA News

On June 6, Merck released a statement announcing its lawsuit against CMS for what it refers to as ‘unconstitutional provisions in the Inflation Reduction Act (IRA)’ requiring drug price negotiations for Branded drugs and biologics. Merck alleges that the required drug negotiations to set Maximum Fair Price (MFP) infringe on its First and Fifth Amendment rights by imposing penalties on drug products and not paying fair value on those drugs all the meanwhile, referring to the MFP as a “negotiation” that manufacturers are forced into based on criteria set forth by CMS. 

This is certainly a challenging time in the industry, and IntegriChain looks forward to discussing these topics around CMS and IRA updates manufacturers of all sizes. If you haven’t begun asking yourself about how some of the changes above could impact your organization, feel free to reach out to your IntegriChain Account Manager or Operational Consulting contact today or email us at consulting@integrichain.com.

References:

• Merck Statement
• CMS IRA Guidance Release

The Rise of Medical Benefit Contracting

The healthcare industry has seen an increase in contracting for medical benefit drugs, which has caught the attention of many due to its potential to change the pricing and reimbursement of drugs in different therapeutic areas. With new drugs and biologics being introduced by pharmaceutical companies, it’s crucial to understand these changes and ensure proper coverage and reimbursement for these treatments. This article will delve into medical benefit drug contracting, the factors that contribute to it, and the impact it has on different stakeholders.

Traditionally, contracting has been more prevalent for drugs covered under the pharmacy benefit because payers typically exert a lot of influence over a patient’s access to a drug through formularies and utilization management. While contracting for drugs covered under the medical benefit is still not as prevalent, we are seeing an increase in contracting for these products in recent years.

What’s behind the rise?

The rising popularity of medical benefit drug contracting is attributable to several factors.

The first is that there are simply more products launching into certain medical benefit categories, ratcheting up the competition within those drug classes. As competition increases, providers and payers alike gain negotiation power and the ability to negotiate steeper discounts or to negotiate discounts for products for which pharma manufacturers have not needed to contract for historically.

In addition, new stakeholders are emerging, which is changing the landscape for coverage of medical benefit drugs. For example, Synergie Medication Collective, a group purchasing organization (GPO), is pooling together nearly 100 million medical benefit lives from a nationwide group of Blue Cross and Blue Shield plans. New stakeholders across the pharma ecosystem, including distributors, GPOs, PBMs, and pharmacies, have been emerging to take advantage of changes in the contracting landscape and are evolving more quickly than some larger, more traditional entities.

Lastly, we are seeing continued increased use of biosimilars in medical benefit categories. Biosimilars have continued to gain share in those markets they have entered. The declining Average Sales Prices (ASPs) seen in reference drugs and biosimilars is indicative of biosimilars launching at lower Whole Acquisition Costs (WACs) but also of increased contracting as growing price concessions lead ASPs on a downward trend. Additionally, there are several big medical benefit brands set to face biosimilar competition over the next several years. Each additional category to face biosimilar competition ratchets up the contracting in the provider and payer segments.

Reimbursement Considerations

Contracting for drugs covered under medical benefits is not without its risks and drawbacks. As with any type of contracting, manufacturers need to evaluate the gross-to-net implications and the return on investment. In today’s market, with increased pressure and controls on pricing, every expenditure is becoming increasingly valuable.

Perhaps the more complex consideration is for those products where certain sites of care are reimbursed using ASP as a basis for reimbursement. Manufacturers calculate ASPs on a quarterly basis and submit them to CMS so that they can subsequently feed into pricing compendia and be used as the basis for reimbursement for commercial payers and Medicare. ASP includes commercial price concessions and manufacturers need to carefully understand the implications that offering price concessions on medical benefit drugs can have on ASP.

To summarize, increased competition in medical benefit categories, the rise of new stakeholders helping payers contract for medical lives, and the ongoing wave of biosimilars have brought about an increase in medical benefit contracting. Manufacturers must understand the gross-to-net considerations and reimbursement implications to ensure any medical benefit contracting strategy achieves its objectives

References:

• Synergie
• MDRP Manufacturer Release No 117, January 23, 2023
• ASES ABARCA Announcement

New CMS Proposed Rule: CMS-2434-P

Amidst an already big year for new regulations – with manufacturers, providers, regulators, and everyone in between unpacking the Inflation Reduction Act and operationalizing new processes – CMS adds to the list of manufacturer considerations with a proposed rule, CMS-2434-P, which was published on May 26.

The proposed rule stretches across a large swath of topics – coming across as a grab bag of low-hanging fruit-including new legislative requirements, drug pricing, product data reporting, program integrity, program administration, audits, government program calculations, and more. We highlight Best Price (BP) stacking below followed by a quick summary of the remaining proposals listed by CMS.

BP Stacking

The proposed “clarification” of the BP stacking rule is getting a lot of attention. BP stacking relates to the aggregation of all eligible discounts given to related entities for the same drug product transaction when determining the lowest price available for a single drug product. The BP stacking debate is no new concept, and many manufacturers have generally settled on a clear “stacking is not required” stance. Whereas with the ACA, CMS seemed to be moving towards a more “follow the pill” interpretation, and some manufacturers started stacking discounts to clearly related entities such as CVS Pharmacy and CVS Caremark.

A court case ruling on January 25, 2022. further dismissed the idea that stacking is mandated. In the case, the Fourth Circuit Federal District Court (FCFDC) dismissed the first and only False Claims Act (FCA) allegation against a manufacturer for failing to stack eligible discounts when determining BP (more details here). With the FCFDC ruling, CMS seems to be trying to push back and “update,” rather than “clarify,” BP calculation requirements. Regardless of whether the proposed rule is finalized, documenting reasonable assumptions is essential for manufacturers to maintain their position if called into question. If the proposed rule is finalized, calculation methodology revisions, system setup, and future contracting strategies could see manufacturers having cumbersome operational challenges.

Below is a list of the other updates provided in the CMS proposed rule.

• Invasive operational and financial surveys imposed on manufacturers with “high-cost” drugs in Medicaid (CMS Fact Sheet). 
• Further clarification on drug classification and added enforcement mechanisms for misclassification. (CMS Manufacturer Release 113).
• The definition of “manufacturer” is being clarified to require all labeler codes associated or affiliated with a manufacturer to have an NDRA.
• The definition of “market date” is being redefined as the day the first product is “sold” rather than made available.
• CMS to suspend manufacturers, and ultimately rescind, NDRA for failure to report drug pricing and/or other required information.
• Limit manufacturers’ timeframe to dispute invoices to 12-quarters (in line with Medicaid drug price reporting true-ups).
• Consideration for the cost-to-benefit ratio of including diagnosis codes along with Medicaid claims.
• To reopen MDP past 12 quarters, manufacturers will be required to be found guilty via internal investigation of fraud, abuse, or violation of law or regulation to meet the internal investigation exception.
• Redefined Covered Outpatient Drug (COD) to cover drugs packaged with a service when the individual drug’s cost is identifiable.
• Clarification of and manufacturer obligation to certify drug product information.
• Additional cost transparency for Medicaid managed care plans to limit spread pricing profits and better culling of 340B duplicate discounts.
•  Enable states to require the collection of NDC information on all physician-administered CODs to better recoup rebates on CODs.
• Rescinded Accumulator Adjustment Rule that would have potentially affected BP. 
• More comprehensive data reporting for pharmacies to change reimbursement rates.
• Updates for the pending AMP Cap removal in 2024.
• Update to Medicaid’s definition of vaccines to distinguish the COD exclusion from infectious disease and therapeutic vaccines.  

To sum up, the CMS proposed rule is just that… a proposal. Whether in support or dissent, we strongly suggest manufacturers closely evaluate the above proposal and actively provide comments to CMS. CMS is soliciting comments by July 25, 2023, on the proposed rule via 3 ways: electronically, regular mail, and express/overnight mail (see contact information after references). As always, IntegriChain continues to support manufacturers in breaking down and staying ahead of new regulations, and if you have any questions or concerns, please reach out to us at consulting@integrichain.com.

References:

• CMS-2434-P
• King and Spalding
• CMS Fact Sheet
• Sidley
• CMS Manufacturer Release 113
• 46Brooklyn, Price Increase Dashboard
• 46Brooklyn, Launch Price Dashboard
• BP Stacking

How to Submit Comments to CMS:

1. Electronically at: https://www.regulations.gov

2. Regular mail at:

Centers for Medicare & Medicaid Services, Department of Health and Human Services

Attention: CMS-2434-P, P.O. Box: 8016

Baltimore, MD 21244-8016

3. By express or overnight mail at:

 Centers for Medicare & Medicaid Services, Department of Health and Human Services

Attention: CMS-2434-P, Mail Stop C4-26-05, 7500 Security Boulevard

Baltimore, MD 21244-1850

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