Biopharma Execs Weigh Controversial Move: Opting Out of Medicare to Escape Drug Price Negotiations

Medicare Enrollment Form

Pictured: a Medicare enrollment form/iStock, zimmytws

A panel hosted last week by JP Morgan and the industry group PhRMA further hinted at possible sweeping changes to the U.S. drug development landscape brought on by the Inflation Reduction Act’s Drug Price Negotiation Program. Specifically, biopharma execs suggested that companies may choose to opt out of Medicare coverage for their drugs to avoid having to negotiate pricing.

The Inflation Reduction Act (IRA), passed by President Joe Biden in August 2022, gives the Secretary of Health & Human Services (HHS) the power to negotiate lower prices on some top-selling drugs on behalf of Medicare. The Centers for Medicare & Medicaid Services (CMS) will announce a list of the first 10 drugs selected for the program this September. 

Last Wednesday, biopharma leaders including Eli Lilly CEO David Ricks and Sage Therapeutics CEO Barry Greene discussed the IRA’s possible implications for Medicare coverage, with both executives suggesting that some companies might seek to bypass Medicare altogether.

Barry Greene_Sage Therapeutics
Barry Greene

Greene told BioSpace in an email that this could have negative outcomes for patients.

“Those decisions may have dire consequences on the elderly,” he said. “Companies should not be forced to choose patient winners and losers, an unfortunate consequence of the IRA.” 

Ricks told JP Morgan analysts that there are some disease categories, such as migraine, where the primary patient population tends to be younger. “So you raise the question of should I even try for government access for new innovation if it’s going to get caught up in potential downstream negotiation, or should I focus on the 80% market,” Ricks said, according to Endpoints News.

However, many disorders being targeted by developers do target older populations, such as those of the brain, a primary focus for Boston-based Sage, Greene noted.  “For many diseases, opting out of Medicare is not an option.”

Medicare and Overall Pipeline Decisions

Kelsey Lang, principal at Avalere Health, a healthcare consulting and advisory firm, told BioSpace that the IRA provides a pathway for manufacturers to avoid negotiation if they cease sales of all products to Medicare and Medicaid. In making this decision, Lang said companies will need to weigh a number of portfolio considerations, including R&D investments, market potential prior to negotiation and competitive dynamics within a therapeutic class. 

Kelsey Lang_Avalere
Kelsey Lang

Under the Social Securities Act, companies that sell to Medicare have signed three agreements—a Medicaid National Drug Rebate Agreement, Veterans Association agreement and 340B agreement, Jayson Slotnik, partner at Health Policy Strategies, told BioSpace. “So, they would have to get out of all of that,” he said, adding that this process would take between 11 and 20 months. “Meanwhile, they’re . . . getting assessed taxes.” 

But Slotnik said the takeaway from the panel is not whether companies can choose not to participate in Medicare. Rather, panelists seemed to focus on whether investment in new drugs is changing due to the IRA.

How the IRA Will Affect Drug Development

Under the IRA, small molecule drugs come up for negotiation nine years after the first FDA approval, while biologics enjoy 13 years of exclusivity. Slotnik said due to this, the oncology field will never see another Keytruda, which is approved to treat 18 different types of cancer.

“Merck would never spend the time and the money to continue to invest in other indications for a Keytruda because . . . CMS is negotiating the drug from the first day of FDA approval.”         

Greene said there is “no clear scientific reason” for the distinction the IRA draws between biologics and small molecule medicines. “Clinical research that leverages both small [molecules] and [biologics] is important as they can engage different targets and work on diseases differently. As a result, there should be equal incentives for both platforms and both ‘negotiations’ should take place no sooner than 13 years,” he said.

Given that the IRA does treat these two drug classes differently the onus is now on companies to assess the best path forward.

Michael Ciarametaro_Avalere
Michael Ciarametaro

“The ability of manufacturers to move away from Medicare and Medicaid is driven by the extent that these emerging opportunities allow them to select conditions that have both low Medicare and Medicaid prevalence and are economically attractive,” Avalere Principal Michael Ciarametaro told BioSpace.

Greene said mental health innovations are heavily impacted by this distinction as many novel therapies in this area are small molecules that pass through the blood-brain barrier. Greene said Sage has not yet made any pipeline changes, but “we are reexamining our pipeline and may adjust, where necessary.”

Lawsuits Mount

In a recent lawsuit filed by Merck against the Biden Administration, the company called the Drug Price Negotiation Program “a sham,” saying it involves neither genuine negotiations nor real agreements.

Merck claimed that the program violates the Fifth Amendment, under which the government is required to pay just compensation for products taken for public use, and the First Amendment by requiring companies to agree to what HHS says are fair prices.

Bristol Myers Squibb filed a similar lawsuit on Friday, claiming that HHS is making the company “parrot its preferred political messaging” by insisting that it publicly position the IRA provision as a negotiation, thereby violating the First Amendment.

These lawsuits are part of a trio filed this month regarding the IRA. The third was filed on June 12 by the U.S. Chamber of Commerce against the Department of Health and Human Services and Centers for Medicare & Medicaid Services. It, too, challenged the constitutionality of the Drug Price Negotiation Program, arguing that it violates the Constitution’s “requirements of limited government, property rights, the rule of law, and the separation of powers,” giving the executive branch too much control over drug pricing. 

Heather McKenzie is a senior editor at BioSpace, focusing on neuroscience, oncology and gene therapy. You can reach her at heather.mckenzie@biospace.com. Follow her on LinkedIn and Twitter @chicat08.

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