To determine its initial offer for a maximum fair price for a selected drug, CMS: (1) identifies therapeutic alternative(s) for the selected drug; (2) determines pricing information about the therapeutic alternatives to determine the starting point for the initial offer; (3) adjusts the initial offer based on information about the clinical benefit of the selected drug compared to its therapeutic alternatives; and (4) makes further adjustments to the offer price as needed based on manufacturer-specific data to determine the initial offer price. (The IRA does not include international drug price data as a benchmark to be used in CMS’s initial pricing decisions or the negotiation process overall.)
CMS uses the price of therapeutic alternative(s) as the starting point for determining the initial offer for the maximum fair price for a given selected drug. Specifically, for the 2028 negotiation year, CMS will use the lower of: for Part D drugs, the net Part D plan payment and beneficiary liability, which excludes both rebates as well as Manufacturer Discount Program payments, the wholesale acquisition cost (WAC), or the maximum fair price negotiated for previously selected drugs if any are therapeutic alternatives for 2028 selected drugs; and for Part B drugs, the average sales price (ASP) or WAC. If there is more than one therapeutic alternative for a selected drug, CMS will determine the starting point within the range of prices for those products.
For selected drugs with no therapeutic alternative or where the price of the alternative(s) is above the ceiling price, CMS will use the Federal Supply Schedule (FSS) or “Big Four Agency” price as the starting point, whichever is lower. (Drug prices listed on the FSS, which establishes prices available to all direct federal purchasers, are determined through both statutory rules and negotiation. A statutory cap on drug prices for the Big Four agencies (the Department of Veterans Affairs, the Department of Defense, the Public Health Service, and the Coast Guard) means the prices they pay are generally lower than prices paid by other direct federal purchasers.) If the FSS or Big Four prices are above the statutory ceiling, CMS will use the statutory ceiling as the starting point for its initial offer.
CMS will adjust the starting point for the initial offer based on a broad evaluation of evidence, including that which is submitted by manufacturers and the public, about the clinical benefit the selected drug provides relative to its therapeutic alternatives, including information about potential safety concerns and side effects, whether the selected drug represents a therapeutic advance as measured by improvements in clinical outcomes, and information about the effects of the selected drug and its therapeutic alternatives on specific populations, including people with disabilities and older adults. CMS will also consider comparative effectiveness data on patient-centered outcomes and patient experiences.
If a selected drug has no therapeutic alternatives, CMS will evaluate evidence about the selected drug’s clinical benefit, including improvements in outcomes, and also will consider the extent to which the selected drug fills an unmet medical need, meaning the drug treats a disease or condition where there are very limited or no other treatment options, or the existing treatments do not adequately address the disease or condition. This consideration will be made separately for each indication of a selected drug, where applicable.
After considering information about clinical benefit, CMS will adjust its starting point for the initial offer price to arrive at a “preliminary price.” After determining the preliminary price, CMS will take into account manufacturer-specific data elements. These data, and their illustrative effect on the preliminary price as described in CMS’s guidance, are:
- Research and development (R&D) costs: if a manufacturer has recouped its R&D costs, CMS could adjust the preliminary price downward, or upward if such costs have not been recouped.
- Current unit costs of production and distribution: if lower than the preliminary price, CMS could adjust the price downward, or upward if such costs are higher than the preliminary price.
- Prior federal financial support: if discovery and development of the selected drug was supported by federal funding, CMS could adjust the preliminary price downward.
- Patent information: this data will support CMS’s evaluation of whether a selected drug represents a therapeutic advance or meets an unmet medical need, particularly in light of any exclusivities which mean that a selected drug is the only available therapy.
- Market data and revenue and sales volume data for the drug in the U.S.: depending on how CMS’s preliminary price compares to other market pricing data for the selected drug, CMS could, for example, revise downward the preliminary price if the average commercial net price is lower, or upward if the average commercial net price is higher.
After making any necessary adjustments to the preliminary price based on a review of manufacturer-specific data, CMS will arrive at its initial offer for the maximum fair price.
