US Drug Price Negotiations and Transparency

When I was penning my latest column for Pharma Commerce, I felt that various recent developments were worth noting, considering the impact they could have on the US prescription drug market. They include the drug industry's push to make Inflation Reduction Act (IRA) changes to the “pill penalty” and negotiation eligibility timing for orphan drugs, along with President Trump’s executive order to reinforce transparency rules for prescription drugs. These are detailed further ahead.

Push for IRA changes

The Centers for Medicare & Medicaid (CMS) Services price negotiations under the IRA involve a selection of eligible Rx drugs that have the highest Medicare budget impact. Small molecules become eligible for negotiations nine years after the first launch of the molecule, whereas biologics have a 13-year grace period. The earlier eligibility for small molecules—a four-year difference—is often referred to as the “pill penalty.” Taking four years off the highest revenue-producing years away from drugs that typically also decline much faster in revenue upon patent expiration is heavily impacting the financial viability of small molecule development in comparison with biologics. The drug industry is pushing for an elimination of the pill penalty, making small molecules eligible for negotiation after 13 years as opposed to nine. They also ask to only start the clock for negotiation eligibility for orphan therapies after the drug loses its orphan drug exclusivity status.

Meanwhile, the industry is arguing that CMS should negotiate separately for drug use under a new formulation or indication. Industry association PhRMA argues that CMS’s interpretation of the IRA—which is to set prices for drugs based on their active moiety or active ingredient—is overly broad.

The industry is hoping to include the mentioned changes in the reform package that Congress is currently considering. However, the additional cost of these changes will certainly be weighed against the Trump administration’s ambitious plans to extend the 2017 tax cut, tackle immigration, and provide additional defense spending. It seems as though the Trump administration is unlikely to prioritize CMS price negotiation reform over tax reform objectives, as there is little room to maintain budget neutrality and avoid a need for a 60% majority requirement in Congress.1

IRA’s impact on availability of new treatments will likely not be clear for another few years, as the portfolio of negotiated drugs is expanding and the impact on company decision-making regarding R&D will become clearer. The mechanism of IRA drug negotiation selection has already resulted in a deprioritization of small molecule (oral) drugs, along with a delay of launch for smaller patient populations with higher medical unmet need until the uses for larger patient populations are ready for FDA approval and commercialization.

Price transparency executive order

Trump signed an executive order (EO) on Feb. 25 that reinforces healthcare price transparency rules that were first issued in 2019, but that were not prioritized for implementation by President Biden. The new EO makes specific reference to drug pricing: “… fully enforce my Administration’s requirement that would end the opaque nature of drug prices by ensuring health plans publicly post the true prices they pay for prescription drugs.” Furthermore, the EO emphasized: “the old directive also required health plans to post their negotiated rates with providers, as well as their out-of-network payments to providers and the actual prices they or their pharmacy benefit manager pay for prescription drugs.”

The new EO may have some far-reaching implications for the drug industry. Transparency of negotiated drug prices will change the dynamics of negotiations with pharmacy benefit managers and managed care plans. It is my belief that all major drugmakers carefully manage the consistency of rebate terms across their customers, but having all prices across customers publicly displayed can intensify the competitive dynamic and force an even higher level of discipline than currently employed. It does not seem that the EO applies to 340B prices and confidential state Medicaid prices such as under California’s MediCal, which would bring further complications.

The EO offers some great opportunities for the industry to bring transparency to levels of patient copayments in relation to the actual drug cost to health insurance plans. It will offer opportunities to highlight the cases where payers are using patient copayments to generate additional profits.

About the Author

Ed Schoonveld is a value and access advisor for Schoonveld Advisory and author of The Price of Global Health.

Reference

1. Kelly C. IRA Negotiation Changes: Pharma’s Focus Remains On Near-Term Legislative, Regulatory Options. Citeline: Pink Sheet. February 25, 2025. https://insights.citeline.com/pink-sheet/market-access/government-payers/medicare/ira-negotiation-changes-pharmas-focus-remains-on-near-term-legislative-regulatory-options-5AJDYB6SWNGVBLOO6KHTLJ3KQA/?utm_source=RSS_feed&utm_medium=twitter&utm_campaign=PinkSheet