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Comments to the Department of Health and Human Services Regarding Medicare Drug Price Negotiation Program Guidance

Washington D.C.


RE: Medicare Drug Price Negotiation Program Guidance 

Dr. Meena Seshamani
Deputy Administrator and
Director of the Center for Medicare
Department of Health and Human Services
7500 Security Blvd.
Baltimore, MD. 21244-1850

Dear Director Seshamani:

I and my colleagues at the Institute for Policy Innovation (IPI) would like to thank the Center for Medicare for this opportunity to comment on how pharmacy benefit managers affect drug access and affordability.

The Institute for Policy Innovation is a non-profit, non-partisan public policy “think tank” based in Irving, Texas, and founded in 1987 to research, develop and promote innovative and non-partisan solutions to today’s public policy problems. IPI is a public foundation, supported wholly by contributions from individuals, businesses and other non-profit foundations.

The Inflation Reduction Act, signed into law last year, introduced unprecedented changes to the Medicare Part D prescription drug benefit. For the first time, the government is empowered to directly negotiate prices for certain high-cost drugs covered by Medicare. On March 15, the Centers for Medicare & Medicaid Services released "initial" guidance describing how it proposes to implement its new price-setting authority. 

What CMS proposes in this 91-page memo should alarm patients and physicians, as well as advocates for government transparency and accountability.

By way of background, I am a resident scholar with the Institute for Policy Innovation, a non-profit, non-partisan public policy "think tank" based in Irving, Texas, and founded in 1987 to research, develop, and promote innovative and non-partisan solutions to today's public policy problems. I am also a past president of the Health Economics Roundtable for the National Association for Business Economics, the largest trade association of business economists.

The guidance sets forth vague standards for how it will identify which drugs are subject to price controls, while severely curtailing input from patients or their doctors. It grants vast discretion to government bureaucrats to decide the price-setting process, while requiring negotiations take place behind closed doors, leaving the public in the dark. Yet despite the momentous changes CMS envisions to Medicare -- changes CMS itself calls "novel" and "complex" -- it has limited the public comment period to just 30 days, half the time typically provided. 

The Biden Administration justifies this power grab by claiming its drug pricing provisions will save the government $237 billion over 10 years. Yet according to the nonpartisan Congressional Budget Office (CBO), government price controls largely achieve their lower costs by narrowing or restricting the choice of medications available to patients. Many analysts predict that the program will only achieve its savings targets if it forces patients to switch away from medicines they have relied on for months or years. 

Medicare beneficiaries won't be the only ones impacted. Given the size of its patient population, Medicare will exert a significant downstream effect on private plans with its drug pricing decisions. All patients will feel the brunt of stifled innovation, as fewer new cures and treatments are developed. 

A CBO analysis of a similar bill predicted that return on investment for new drugs would drop by 15 to 25 percent after Medicare price controls are implemented -- resulting in 30 fewer new medicines by 2029. An analysis by Tomas Philipson at University of Chicago predicted that 135 fewer drugs would launch by 2039. 

The stakes are too high to prematurely cut off debate. Patients, physicians, and other stakeholders must have sufficient time to weigh in. Instead, CMS is trying to rush the process, ruling that certain key provisions in its guidance -- such as which types of drugs are eligible for price-setting -- are already "final" and thus not subject to any public feedback. 

In some cases, CMS is even overreaching its statutory authority. Congress exempted from price negotiations drugs which have been on the market for fewer than nine years (for small-molecule drugs) or 13 years (for biologics) -- yet CMS claims it can negotiate prices for drugs that have not yet reached the end of the patent-protection period provided by Congress -- and again, argues that its determination is "final." 

What space CMS does provide for patient and physician input is plainly inadequate. Under its proposed guidance, once CMS selects a drug for price negotiations, patients and physicians will only be invited to share their perspectives during a general "information collection request" (ICR). This ICR will take place before crucial data is shared, such as what treatment alternatives are available or which drug indications or disease outcomes might be relevant. Using the ICR itself suggests the pro forma character of this process, as ICRs are typically used by the government to collect technical data. Clearly, CMS does not intend to place much value on patient or physician viewpoints. 

How will CMS ascertain a drug's "fair" price? It proposes to compare a selected drug not to a bioequivalent, but to all drugs that treat the same condition or have a similar therapeutic effect. It will then base its price on the lowest-priced drug in that therapeutic class. This pricing scheme is supposed to shift drugmakers away from developing the so-called "me-too drugs" that follow on a medical innovation. Yet, as patients and doctors know all too well, medications are not interchangeable, and patients with the same disease may respond very differently to a particular drug. Besides, these so-called me-too drugs provide valuable competition for the original products. Many patients work with their physicians over a long period of time to find the right combination of medications that adequately treats their condition and limits side effects. Nor is a first-in-class drug necessarily the best. Lipitor and Crestor were the fourth and fifth statins approved by the FDA, yet these "me-too drugs" have proven more effective in treating heart disease than earlier medications. 

But the public will not be privy to many key details on how the CMS determines a drug's price. CMS rules require that drugmakers keep confidential all negotiation discussions, including the price CMS offers and any justification it provides for its price. Moreover, drugmakers must destroy all information received from CMS during negotiations within 30 days after a drug no longer qualifies as a selected drug. These requirements would run afoul of FOIA and government record-keeping rules, and they could even constitute a prior governmental restraint on speech. 

This lack of transparency will hinder efforts to hold government accountable. While drugmakers have a strict 30-day window to submit data on a drug and to accept an offer, CMS only has to share a public explanation for its price more than a year after soliciting initial feedback and six months after a drug's price is published. In the meantime, drugmakers will be muzzled by confidentiality rules from raising concerns about CMS errors or methodological problems. 

The Inflation Reduction Act failed to reduce inflation, but it could jeopardize the rare government program that achieves high levels of public approval. A survey last year found that nearly 90 percent of seniors say they are satisfied with their Medicare Part D coverage. Yet the Biden Administration has proposed to radically change the program, potentially limiting patients' access to life-saving medicines and endangering future cures. Nearly 50 million Americans rely on Medicare Part D. The program must not be drastically changed until their voices have a chance to be heard. 


Merrill Matthews, Ph.D.
Resident Scholar
Institute for Policy Innovation