In what appears to be a response to manufacturer complaints regarding “black box” Inflation Reduction Act (IRA) drug price negotiations, the US administration issued a statement on January 29, 2025, stating it planned to consider “opportunities to bring greater transparency” to the negotiation process. Manufacturers assert that greater transparency requires the Centers for Medicare and Medicaid Services (CMS) to adopt a more formulaic approach to price negotiations, where each statutory negotiation factor is assigned a weighted value that CMS must use when negotiating prices.
If adopted, advocates contend this would enable manufacturers to meaningfully prepare for negotiations, respond to CMS’s offers, and submit counteroffers. And with what appears to be support from the US administration and CMS, such proposals may soon find traction and result in changes to the drug negotiation process.
CMS has been reluctant to explain how manufacturer submitted data is weighted against the statutory factors in determining offers and responding to counteroffers. This reluctance has and continues to draw significant scrutiny from pharmaceutical manufacturers and other industry leaders regarding the drug price negotiation process.
Although the IRA requires CMS to use a consistent methodology in negotiation drug prices, the current process permits CMS to evaluate manufacturer submitted data holistically and assess any value it deems appropriate to any of the statutory factors (e.g., research and development costs, federal financial support, unit costs of production and distribution, market/revenue/sales data, etc.) in negotiating prices for selected drugs. There are no set requirements or criteria mandating what, if any, weight must be attributed to each factor in CMS’ determination of offers and consideration of counteroffers.
Manufacturers contend this results in “black box” negotiations that prevent manufacturers from effectively preparing for, evaluating, or responding to CMS’ offers. Manufacturers argue that the lack of clear methodologies as to how CMS weighs each statutory factor and arrives at certain price points results in manufacturers having to guess what factor or factors CMS deems most critical to the specific drug being negotiated in evaluating offers or responding to counteroffers. For these reasons, manufacturers argue in favor of a more formulaic negotiation process where each negotiation factor is assigned a weighted value. Manufacturers contend this would provide for a more transparent negotiation process.
While CMS published MFP negotiation explanations for the first 10 negotiated drugs, the explanations do not provide insights into how CMS weighted each negotiation factor. Manufacturers argue that the explanations are insufficient to inform and enable transparent negotiations. For these reasons, manufacturers continue to support implementation of a formulaic negotiation process. And while the US administration has committed to greater transparency in the negotiation process, it has not signaled whether it would adopt such an approach.
CMS has outlined the following process for price negotiations for drugs selected for IPAY 2027:
With the US administration considering opportunities to improve the drug price negotiation process and CMS commitments to incorporate lessons learned from the first round of negotiations, there appears to be interest in allowing stakeholders an opportunity to provide insight into and suggest improvements to the drug price negotiation process. Manufacturers would be well advised to take advantage of any opportunity available or offered to provide input to CMS on how it can improve and increase transparency in the negotiation process. Further, manufacturers should continue to monitor for developments as changes to the negotiation process may come in the form of updated CMS guidance or proposed rulemaking.
Our team will continue monitoring developments and provide updates as information is released.
Morgan Lewis lawyers are well suited to provide strategic counseling to drug manufacturers on complex IRA drug price negotiation matters and can assist clients with drafting and submitting comments to CMS.
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