CMS is seeking comment on this draft guidance for the drug price negotiation process for IPAY 2027, for which the next 15 Part D drugs will be selected by February 1, 2025. CMS also issued a proposed template MFP file, definitions document, and updated Information Collection Request (ICR) form for data submission for small biotech exemption and biosimilar delay requests. Comments on all these documents are due July 2, 2024. A proposed ICR on the negotiation factors data submission for IPAY 2027 is forthcoming in summer 2024.
This alert focuses on proposed changes (as compared to IPAY 2026) and new policies, including some that, by statute, are required to be implemented for the first time with respect to IPAY 2027. The key documents are as follows:
For a refresher on the basics of the Drug Price Negotiation Program, the key documents are as follows:
What are the most significant proposed changes to the IPAY 2026 Final Guidance for IPAY 2027?
What drugs are eligible for selection for negotiation?
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Qualifying single source drug.
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IPAY 2026 Final Guidance: A qualifying single source drug (QSSD) was defined as a Food and Drug Administration (FDA)-approved drug/biological product for which at least 7/11 years have elapsed since approval/licensure and for which there is no generic/biosimilar product on the market, inclusive of all dosage forms and strengths with the same active moiety/ingredient and the same New Drug Application (NDA)/Biologics License Application (BLA) holder. Fixed combination products with two or more active moieties/ingredients were to be treated as distinct from their individual components, such that each combination of active moieties/ingredients is a distinct qualifying single source drug, inclusive of all formulations of that combination offered by the same NDA/BLA holder.
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Proposed Changes in IPAY 2027 Draft Guidance? No. CMS retains the single active moiety/ingredient standard but clarifies that it will investigate products with different trade names marketed under different NDAs/BLAs containing the same active moiety/active ingredient for purposes of identifying potential QSSDs.
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Exclusions from qualifying single source drug and negotiation-eligible drug definitions.
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IPAY 2026 Final Guidance: CMS set forth standards implementing the statutory exclusions from the definition of QSSD for (1) certain orphan drugs, (2) low Medicare spend drugs, and (3) plasma-derived products. Among other things, CMS clarified that the orphan drug exclusion applies to drugs with one active orphan drug designation and for which the only active approved indications are for that disease or condition and that it will not consider withdrawn designations/indications in this analysis. CMS further clarified that, if a drug loses its orphan drug exclusion status, the agency will use the earliest date of approval/licensure to determine whether the product is a QSSD. On a related note, CMS also set forth its standards for the exclusion of small biotech drugs from negotiation-eligible drugs.
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Proposed Changes in IPAY 2027 Draft Guidance? No, but some clarifications are proposed.
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As to low Medicare spend drugs, CMS proposes to clarify that, for a single source drug or biological product assigned a shared billing and payment code, CMS would apportion the amount of spending specific to a selected drug under that code toward the low-Medicare spend drug threshold based on the proportion of the selected drug’s average sales price volume data relative to those of other drugs in the code.
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As to small biotech drugs, manufacturers would be required to submit a small biotech drug exception request by mid-December 2024, to be eligible for consideration for the exclusion for IPAY 2027. CMS also proposes to clarify that it “will publish the number of drugs that applied for and received the [small biotech exception] for initial price applicability year 2026 as part of publishing the selected drug list on February 1, 2025.”
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Delay in selection of biological product on account of anticipated biosimilar product market entry.
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IPAY 2026 Final Guidance: CMS set forth the process for delaying, by one (Initial Delay Request) or two (Additional Delay Request) years, selection for negotiation of a biologic that would otherwise be selected, where (1) the biologic would have been an extended-monopoly drug if selected, (2) the delay is requested by a biosimilar manufacturer, (3) the biosimilar manufacturer submits certain specified information, (4) CMS determines that there is a high likelihood that the biosimilar will be licensed and marketed within two years of what otherwise would be the selected drug publication date, and (5) certain disqualifying circumstances are not present.
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Proposed Changes in IPAY 2027 Draft Guidance? No. CMS is soliciting comment regarding the types of documentation that may constitute “clear and convincing evidence” that the manufacturer has satisfied the high likelihood standard. CMS is also soliciting comment on the date by which CMS should inform the biosimilar manufacturer of a successful Initial Delay Request. CMS notes that it is considering making Initial Delay Request determinations for IPAY 2027 by late 2025 to allow for sufficient notice to the biosimilar manufacturer prior to publication of the selected drug list for IPAY 2028.
What about the bona fide marketing standard?
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IPAY 2026 Final Guidance: CMS stated that a drug/biological product may not be selected for negotiation where a generic/biosimilar product was “marketed” by the selected drug publication date or during the negotiation period. In addition, a selected drug generally would cease to be subject to the MFP at the start of the year that begins at least 9 months after a generic/biosimilar product “is marketed.” CMS stated that it considers a drug to be marketed when the totality of the circumstances, including Medicare Part D prescription drug event (PDE) data and average manufacturer price (AMP) data for a specified 12-month period, establish that a generic/biosimilar product is the subject of “bona fide marketing.” Where a selected drug was not subjected to an MFP on account of this exception, CMS indicated that it would continue to monitor the drug/biological product to ensure that the bona fide marketing standard continues to be satisfied.
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Proposed Changes in IPAY 2027 Draft Guidance? No. CMS will continue to apply the bona fide marketing standard to its determination of whether a generic/biosimilar product is marketed and will continue to employ a totality of the circumstances approach to determine whether that standard is satisfied.
How will drugs be selected for negotiation?
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IPAY 2026 Final Guidance: For IPAY 2026, CMS identified the 50 qualifying single source drugs with the highest total Part D expenditures over a specified 12-month period using PDE data. CMS then ranked these drugs, highest to lowest, and selected the 10 highest ranked drugs on this list for negotiation, unless removed from the list on account of a delay in the selection of a biological product for negotiation.
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Proposed Changes in IPAY 2027 Draft Guidance? No, except that, consistent with the statute, CMS will select the 15 highest ranked drugs on the list for negotiation for IPAY 2027, unless removed on account of a delay in the selection of a biological product for negotiation.
How will the negotiated price be set?
- A specified percentage (discussed below) of average non-FAMP for 2021 (or, where there is no non-FAMP for 2021, the average non-FAMP for the first full year following market entry), increased by an inflation factor from September 2021 (or December of the first full year following market entry) to September of the year prior to the selected drug publication date.
- The specified percentage was to be determined by the length of time the drug has been on the market prior to the start of the IPAY.
- For long-monopoly drugs, for which at least 16 years have elapsed since approval or licensure (excluding vaccines), 40 percent.
- For short-monopoly drugs, which encompass all other drugs, 75 percent.
2. The sum of the plan-specific enrollment-weighted amounts, which was to be calculated using the enrollment-weighted amount of the Part D negotiated price of the selected drug under each Part D prescription drug plan or Medicare Advantage prescription drug plan net of price concessions received by such plan or its pharmacy benefit manager.
- Proposed Changes in IPAY 2027 Draft Guidance? No, except to address the statutory requirement that, for the first time, two different average non-FAMP figures will be considered when setting the MFP ceiling, among other technical changes.
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With respect to the calculation of the specified percentage of average non-FAMP, and consistent with the statute, starting with IPAY 2027, CMS will calculate the specified percentage, as described above, of each of two average non-FAMPs: the inflation-adjusted average non-FAMP for 2021 (or the first full year following market entry if a 2021 average non-FAMP is not available) and the average non-FAMP for the year prior to the selected drug publication date, which, for IPAY 2027, is 2024. CMS will then choose as the MFP ceiling the lowest of the two average non-FAMP figures and the sum of the plan specific enrollment weighted amounts.
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CMS will use only NDC-11s for purposes of these average non-FAMP calculations, not including NDC-11s for samples, for which there are non-FAMP data in at least one calendar quarter in 2021 or 2024 respectively and for which CMS observes PDE days’ supply and quantity dispensed during 2021 or 2024 respectively.
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With respect to calculating the sum of the plan-specific enrollment-weighted amounts, CMS will use only NDC-11s of the Primary Manufacturer (or marketed by a Secondary Manufacturer), not including NDC-11s associated with samples, that show up in a PDE record that is considered final action at more than $0 for a covered Part D drug and for which CMS observes Direct and Indirect Remuneration (DIR) amounts for calendar year 2023.
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Manufacturer-submitted information.
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IPAY 2026 Final Guidance: In negotiating the MFP, CMS stated that it is required to consider certain information submitted by the manufacturer, including information regarding research and developments costs; production and distribution costs; federal financial support for discovery and development; pending and approved patents, FDA exclusivities, and FDA applications; and market, revenue, and sales volume data. CMS defined data elements in the IPAY 2026 final guidance and the accompanying Negotiation Data Elements ICR.
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Proposed Changes in IPAY 2027 Draft Guidance? Yes. CMS proposes to clarify that manufacturers are obligated to “timely report certain updates to data submissions.”
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Specifically, manufactures must submit updates if “the data was restated due to requirements of the government entity that initially receives and oversees processing of such data” (e.g., revisions to the “best price” reported for purposes of the Medicaid Drug Rebate Program (MDRP)).
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The guidance states that the updates must be “timely” submitted to CMS via the IRA Mailbox but does not specify a deadline. CMS does not address whether there would be penalties for noncompliance with the expectation to submit these updates.
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Initial offer: identification and pricing of therapeutic alternatives.
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IPAY 2026 Final Guidance: CMS addressed the evidence regarding alternative treatments to be collected, including the extent to which the selected drug represents a therapeutic advancement; the costs of therapeutic alternatives; FDA-approved prescribing information for the selected drug and therapeutic alternatives; the comparative effectiveness of the selected drug and the therapeutic alternatives; and the extent to which the selected drug and the therapeutic alternatives address unmet medical needs. In identifying the prices of identified therapeutic alternatives to use as the basis for the initial offer, CMS indicated that it starts with “the Part D net price for the therapeutic alternative(s) that is covered under Part D and/or the Average Sales Price (ASP) for the therapeutic alternative(s) that is covered under Part B.”
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Proposed Changes in IPAY 2027 Draft Guidance? Yes. CMS elaborates on the initial offer and signals that there may be proposed changes to the questions related to evidence about therapeutic alternatives in the forthcoming proposed Negotiation Data Elements ICR for IPAY 2027.
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CMS indicates that, in identifying the prices of therapeutic alternatives for purposes of developing the initial offer, it will use “the lower of Part D total gross covered drug cost (TGCDC) net of DIR and [Coverage Gap Discount Program (CGDP)] payments . . . for the therapeutic alternative(s), and/or the Average Sales Price (ASP) for the therapeutic alternative(s) that is covered under Part B, or the MFP for initial price applicability year 2026 selected drugs that are therapeutic alternatives to determine a starting point for developing an initial offer . . . .” (emphasis added).
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CMS notes that, in the forthcoming proposed ICR, it may propose to group certain questions together within certain categories—manufacturer input, patient or caregiver experience, clinical experience, and health research—to improve the data collection process.
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CMS is specifically soliciting comment on how to improve patient-focused listening sessions as part of the negotiation process and the number and format of manufacturer opportunities to engage with CMS (which CMS is considering reducing given the increased number of drugs to be selected for IPAY 2027).
In addition to the providing access to the MFP, what will happen after the MFP is set?
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Publication of the MFP.
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IPAY 2026 Final Guidance: The MFP and explanation of the MFP were to be published on the CMS website by the applicable statutory deadlines. CMS clarified that the published explanation “[is to] contain the single MFP for a 30-day equivalent supply of the selected drug, the NDC-9 per unit price, and NDC-11 per package price and will be updated annually to show the inflation-adjusted MFP for the selected drug.” The explanation was to include, subject to the confidentiality policy, “any data or circumstances that may be unique to the selected drug” and “redacted information regarding . . . data received, exchange of offers and counteroffers, and the negotiation meetings, if applicable.”
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Proposed Changes in IPAY 2027 Draft Guidance? No. CMS is requesting comment on the MFP publication file layout to be posted on its website.
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Application of the MFP.
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IPAY 2026 Final Guidance: CMS indicated that it will cap the single MFP per 30-day equivalent supply only at the drug level, which will then be converted into an as-applied MFP at the unit or package level. CMS stated that it would permit manufacturers 30 days to submit a suggestion of error to CMS where they believe there has been an error in calculating the MFP ceiling or the as-applied MFP. Where an NDC was new, but there were not sufficient WAC or PDE data from 2022 to calculate an as-applied MFP, “CMS w[ould] determine whether there [wa]s an existing, comparable NDC to which the MFP for the selected drug has been applied” and “impute” the data necessary to calculate the as-applied MFP for the new NDC by reference to the data for the comparable NDC.
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Proposed Changes in IPAY 2027 Draft Guidance? No, but CMS proposes to clarify that it will calculate the as-applied MFP only for a drug with a non-zero WAC in a calendar quarter in 2024. Drugs for which CMS does not calculate the as-applied MFP would be treated as new NDCs. CMS also proposes to reduce the number of days a manufacturer has to submit a suggestion of error for calculating the MFP ceiling or as-applied MFP from 30 to 21 days.
What is the timeline for the IPAY 2027 negotiation process?
The IPAY 2027 timeline largely mirrors that of IPAY 2026, with the exception that the statutory period between the deadline for execution of the negotiation agreement and the end of the negotiation period is one month shorter than that for IPAY 2026, which causes certain phases of the process to be marginally shorter.
- Fall 2024: CMS intends to issue the IPAY 2027 Final Guidance.
- Mid-December 2024: Proposed deadline for requests for the small biotech exemption and for the biosimilar delay.
- February 1, 2025: Deadline for CMS to publish the list of selected drugs for negotiation for IPAY 2027.
- February 28, 2025: Deadline for manufacturers of selected drugs to sign negotiation agreements.
- March 1, 2025: Deadline for manufacturers of selected drugs to submit required data.
- Post-March 1, 2025: Patient-focused listening sessions and other opportunities to engage with CMS.
- June 1, 2025: Deadline for CMS to send initial MFP offers to manufacturers.
- July 1, 2025: Deadline for manufacturers to accept the initial MFP offer or propose a counteroffer.
- Summer 2025: CMS must respond to counteroffers within 30 days of receipt of the counteroffer or within 60 days of the initial MFP offer, whichever is later.
- October 31, 2025: Deadline for manufacturers to accept or reject CMS’s final MFP offer.
- November 30, 2025: Deadline for CMS to publish MFPs for IPAY 2027.
- March 1, 2026: Deadline for CMS to publish an explanation of the MFPs for IPAY 2027.
Other topics
CMS stated that a manufacturer that does not wish to enter into an agreement may issue a notice of decision not to participate in the program to CMS and a request to expeditiously terminate its MDRP, Medicare CGDP, and Manufacturer Discount Program agreements, which CMS would grant for good cause. CMS established a similar process to terminate an executed agreement.
What’s next?
We will learn more about CMS’s proposals regarding data submission for IPAY 2027 when CMS publishes the proposed ICR with respect to that process in the coming months. Any manufacturer that anticipates selection of a drug/biological product for negotiation for IPAY 2027 or a future year should consider commenting on the draft guidance and related proposed ICRs and other documents. Again, comments are due by July 2, 2024.
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We will monitor the implementation of this guidance, and any additional guidance CMS issues with respect to the Drug Price Negotiation Program. As always, it is important that you carefully review all such guidance to identify issues relevant to your organization.