In our January blog post on this topic, The Drug Pricing Landscape in 2023: Renewed Pressure for Pricing Reform, we speculated that in 2023 we could see changes in the regulation of drug pricing in the U.S. It’s only the beginning of April and there have already been some notable developments—albeit in multiple directions.
First, we saw some movement towards greater control over drug prices. On February 9, the Center for Medicare (“CMS”) of the Department of Health and Human Services (“HHS”) released its initial guidance on the implementation of the Inflation Reduction Act (“IRA”) Medicare Prescription Drug Inflation Rebate Program.
Just over a month later, on March 15, 2023, CMS published a list of 27 drugs that will be subject to rebates as a result of prices rising more quickly than inflation. [1] According to CMS, as a result of these rebates, for the second quarter of 2023, people with Medicare may pay co-pays between $2 to $390 per dose less than they otherwise would have paid in respect of these 27 drugs.
That same day, March 15, CMS released its initial guidance on the IRA’s Medicare Drug Price Negotiation Program, which requires CMS to negotiate with drug developers to set a “maximum fair price” that CMS will pay under Medicare for certain single-source drugs.[2] While the negotiated prices will not go into effect until 2026, given the parameters of the negotiation process (and the excise tax associated with a failure to comply with the process) it seems likely that there will be downward effect on prices.
Just one week later, on March 21, 2023, however, we saw HHS steer in the other direction by declining a November 2021 petition requesting that HHS initiate march-in proceedings to lower the cost of the prostate cancer drug Xtandi.[3] Xtandi was developed, in part, through the use of HHS funding. Under the Bayh-Dole Act, funding agencies have the authority to require drug manufacturers to out-license a federally-funded invention if the drug is not “made available to the public on reasonable terms.”[4] (For more background on the march-in authority, click here). For years, drug price reform activists—including several sitting Members of Congress—have been pressuring HHS to utilize the march-in authority as an avenue to lower the cost of drugs by introducing market competitors before all relevant patents have expired. But HHS has specifically declined petitions to exercise its march-in rights to control drug pricing on several occasions—and has expressly rejected the argument that a high cost renders a drug unavailable on reasonable terms, arguing instead that drug pricing remains under Congress’ control.
Yet, on the same day that HHS rejected the Xtandi march-in petition, HHS and the Department of Commerce announced that they would be forming an inter-agency working group to “develop a framework for implementation of the march-in provision that clearly articulates guiding criteria and processes for making determinations where different factors, including price, may be a consideration in agencies’ assessments.”[5]
Thus, despite the recent decision by the HHS, it seems clear that the Biden Administration more broadly has not completely ruled out the possibility of using pricing concerns as a justification for exercising march-in rights. The HHS/Commerce working group will hold a workshop this year, seeking input from various stakeholders, to provide clarity on the situations in which HHS may exercise march-in rights.
Freshfields will continue to closely monitor the status of drug pricing measures, given their potential ripple effects on the types of transactions that biopharma companies enter into and on the life sciences industry as a whole.
[2] HHS Releases Initial Guidance for Historic Medicare Drug Price Negotiation Program for Price Applicability Year 2026 | CMS; Medicare Drug Price Negotiation Program: Initial Memorandum, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2026, and Solicitation of Comments (cms.gov)
[3] NIH-rejection-Xtandi-marchin-12march2023.pdf (keionline.org)
[4] 35 USC § 203; see also 37 CFR § 401.14(a)(3)
[5] HHS and DOC Announce Plan to Review March-In Authority | HHS.gov
