CMS Issues First Request For Public Comments On The Medicare Drug Price Negotiation Program “Small Biotech” Exception – Due March 27, 2023 – Healthcare

The Inflation Reduction Act’s (“IRA”)
drug price negotiation provisions have captured the
pharmaceutical and biotech industry’s attention. In part, the
IRA allows the Centers for Medicare & Medicaid Services
(“CMS”) to implement a price negotiation process that
places Medicare price caps on top-spend single-source drugs and
biologics without generic or biosimilar competition. The first set
of ten drugs to be subject to these negotiated price caps are
slated to be selected in September of this year. The IRA authorizes
CMS to implement the IRA’s provisions via
“Program Instruction” and not traditional
notice-and-comment rulemaking for the first three years of the
program (2026, 2027, and 2028). See new 42 U.S.C. §
1320f-7(c).

Despite this authority, CMS has committed to issuing
“voluntary” requests for comments from the public on a
limited set of topics, including the logistics of how the so-called
“small biotech” exception can apply for price years 2026,
2027, and 2028; the data elements CMS intends to collect as part of
the negotiation process; and the offer and counteroffer process as
part of the price negotiations. CMS has indicated that these
requests will be issued throughout the first two quarters of
2023.

On January 24,
2023, CMS issued its first
such request in the Federal Register, seeking feedback from the
public on limited details about the small biotech
exception. In brief, CMS is permitted under the IRA to
exempt from price negotiations “small biotech drugs.”

By way of background, a manufacturer qualifies for the small
biotech exception (which would exempt the manufacturer from
negotiated price caps for years 2026, 2027, and 2028) under new 42
U.S.C. § 1320f-1(d)(2) by meeting certain statutory
requirements:

• First, there must be a Coverage Gap Discount Agreement in place
  for the drug. This is a special agreement that, in short, requires
  a manufacturer to offer a discounted price for Medicare
  beneficiaries who are in the so-called “coverage gap”
  between the initial coverage phase for Part D and the catastrophic
  coverage phase.




• Second, the total Medicare Part D spend for the drug in 2021
  must be:
  

  • Less than or equal to 1% of the total Medicare Part D spend on
    all covered Part D drugs in 2021; and

  
  

  • Greater than or equal to 80% of the total Medicare Part D spend
    for all of the manufacturer’s Part D covered drugs in 2021 for
    which the manufacturer has a Coverage Gap Discount Agreement.
    See new 42 U.S.C. § 1320f-1(d)(2)(A)(i).




• Third, with respect to Medicare Part B drugs, which are not
  subject to the negotiated price caps until 2028, to qualify for the
  exception for price year 2028, the total Medicare Part B spend for
  the drug in 2021 must be:
  

  • Less than or equal to 1% of the total Medicare Part B spend on
    all qualifying single-source drugs for which payment can be made
    under Part B in 2021; and

  
  

  • Greater than or equal to 80% of the total Medicare Part B spend
    for all of the manufacturer’s qualifying single source drugs in
    2021. See new 42 U.S.C. § 1320f-1(d)(2)(A)(ii).

A few special rules apply:

• The statute instructs CMS that it cannot consider a drug to
  meet the criteria if it is acquired after 2021 by another
  manufacturer that does not have a Coverage Gap Discount Agreement
  in place at the beginning of the year immediately after the
  acquisition. See new 42 U.S.C. §
  1320f-19d)(2)(B)((ii).




• For purposes of calculating the threshold Medicare spend
  percentages above, the statute instructs CMS to aggregate all
  persons who are treated as a “single employer” for
  purposes of section 52(a) and (b) of the Internal Revenue Code as
  “one manufacturer.” See new 42 U.S.C. §
  1320f-19d)(2)(B)(i), referencing I.R.C. § 52, Special Rules
  for Controlled Group of Corporations.




• The statute instructs CMS that a new formulation of a drug (for
  example, an extended release formulation) cannot be considered a
  qualifying single source drug for purposes of the negotiation
  program. See new 42 U.S.C. § 1320f-19d)(2)(C).

And indeed, the IRA takes the small biotech exception seriously.
In fact, the statute imposes a $100 million civil monetary
penalty for each item of false information that is
submitted to CMS in connection with procedures relating to the
small biotech exception. See new 42 U.S.C. §
1320f-6(c).

CMS’s January 24th request has been issued under the
Paperwork Reduction Act (“PRA”), which requires federal
agencies to seek approval from the Office of Management and Budget
for each collection of information that might create a burden on
the public or on key stakeholders. In a PRA notice, the agency
essentially gives the public 60 days to provide feedback on how
much of a cost burden a specific data collection exercise will
impose on the public and government.

Here, CMS is focused narrowly on the burden to complete the
small biotech exception application for 2026. CMS is not asking for
feedback on the implementation of the IRA, how the small biotech
exception should be defined, or any other matters related to the
price negotiation provisions. Further, CMS has limited its request
to the 2026 price year: in other words, the feedback provided will
only pertain to how CMS collects information for the first year of
the negotiated price caps and not for other years. Further, CMS
made clear in a January 11, 2023 memorandum outlining IRA
implementation timing that it only wants comments from
manufacturers who may be seeking the exception for price year
2026.

Under CMS’s approach, as outlined in the January 24th
Federal Register notice and related supplemental information, a
manufacturer seeking to take advantage of the small biotech
exception will have to submit an application to CMS that includes
key information for how the company meets the small biotech
exception. CMS has released a sample of the application, which
would require disclosing:

1. The relevant manufacturer’s name, employer identification
   number, address, and unique identifier assigned by CMS as well as
   all labeler codes;




2. All 11-digit National Drug Codes (NDCs) of drugs marketed
   during 2021 or end-dated prior to December 31, 2021 for the covered
   Part D drug for which the manufacturer is seeking the small biotech
   exception;




3. Confirmation that the manufacturer had a Coverage Gap Discount
   Program Agreement OR information about a relevant entity that did
   have such an agreement in place on December 31, 2021 for the
   relevant drug;




4. Information about the “controlled group” -
   i.e., all corporations, partnerships, proprietorships, and
   other entities treated as a single employer for purposes of section
   52 of the Internal Revenue Code; and




5. A certification that includes a statement that the certifying
   party understands that any misrepresentations may give rise to the
   False Claims Act and other liability.

Notably, in its supplemental documentation attached to the
January 24th Federal Register notice, CMS states its plan to
develop an automated tool within the existing Health Plan
Management System for manufacturers to submit the small biotech
exception information, with a launch of mid-2023.

CMS also includes its estimates of the costs to manufacturers
applying for the small biotech exception and the costs to the
government to implement the data collection procedure for the small
biotech exception. These estimates are, quite simply, very low:

• CMS believes that there will be approximately nine
  manufacturers of negotiation-eligible drugs that will submit a
  request for the small biotech exception for price year 2026 and
  that have acquired their drug prior to December
  31, 2021. CMS estimates that it will take a lawyer five hours at
  $142.34/hour to gather and review relevant Internal Revenue Code
  provisions and to identify any “controlled group members”
  that, as of December 31, 2021, were treated as a “single
  employer” with the manufacturer under the Internal Revenue
  Code. CMS estimates it will take a drug manufacturer’s CEO 15
  minutes at $204.92/hour to review the information and log into
  CMS’s information technology system to authorize the
  submission. Finally, CMS estimates it will take an operations
  manager at a manufacturer one hour at $110.82/hour to examine and
  submit the information to CMS. All total, for each of these
  nine manufacturers, CMS estimates it will cost $873.73 per
  manufacturer or $7,863.53 across all nine manufacturers to complete
  the small biotech exception application.




• CMS believes that there will be only one manufacturer that will
  submit a request for the small biotech exception for price year
  2026 that will have acquired their drug after
  December 31, 2021. CMS estimates that it will take a lawyer ten
  hours at $142.34/hour to gather and review relevant Internal
  Revenue Code provisions, including contacting the entity
  that had the Coverage Gap Discount Program Areement for the drug in
  2021 to identify any “controlled group members”
  that as of December 31, 2021 were treated as a “single
  employer” under the Internal Revenue Code and must be counted
  together by CMS when calculating 2021 Medicare expenditure for all
  covered Part D drugs for which that entity had an agreement under
  the Medicare Coverage Gap Discount Program. CMS estimates it will
  take a CEO 15 minutes at $204.92/hour to review the information and
  log into CMS’s information technology system to authorize the
  submission. Finally, CMS estimates it will take an Operations
  Manager two hours at $110.82/hour to examine and submit the
  information to CMS. For this one anticipated manufacturer,
  CMS estimates it will cost $1,696.25 to complete the small biotech
  exception application.

This means that CMS estimates it will be a burden on all drug
manufacturers of $9,559.77 to conduct a complicated analysis under
the federal tax code to aggregate persons under a controlled group
of corporations; to assess and analyze whether there was an
appropriate Coverage Gap Discount Agreement in place; to complete
the relevant paperwork; and to submit the actual request for the
small biotech exception. This amount is not $9,559.77 per
manufacturer, but it is intended to cover ALL manufacturers.

• Finally, CMS estimates it will take one GS-13 federal employee
  40 hours at $102.36/hour to maintain the small biotech exception
  information collection request form and 200 hours at $102.36/hour
  to provide technical direction to a contractor for the information
  technology system. CMS also estimates it will take a contracted
  vendor 1,120 hours at $254.54 per hour to build the IT system to
  support the small biotech exception information collection request
  form. All total, CMS estimates that the total cost to the
  government will be $299,571.20.

In addition to these low estimates, unanswered questions from
CMS’s release include (a) when the application will be due in
order to be considered for the small biotech exception; (b) what
happens in the event that the entity that held the Coverage Gap
Discount Agreement as of December 31, 2021 is no longer operational
or is unwilling to provide data or information to the requesting
manufacturer; and (c) how CMS intends to review and use the
information from the application. CMS also does not provide a great
deal of information about the proposed IT systems that will be
implemented to capture all of the relevant data and administer the
program.

Given that notice-and-comment rulemaking will not be issued with
respect to the substantive Medicare drug price negotiation program
requirements – i.e., the negotiated price cap
provisions of the IRA – for several years, it is important
for stakeholders to provide feedback to CMS when possible.

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