Manufacturers and their teams learned the importance of setting internal expectations for success in the initial cycle of the Medicare price negotiation process, according to legal and health policy experts from Washington, DC-based Manatt Health and value-based contracting consultants from Verpora, which is headquartered in the UK.
Key Takeaways
-
Setting appropriate expectations internally about measuring success in a process where the Centers for Medicare and Medicaid Services has all the leverage was an important part of the preparation.
-
Understanding that the agency’s motivations in the process were influenced by the upcoming presidential election and ongoing litigation helped.
-
At times, agreeing to disagree and then moving on also was a successful strategy.
“One really important piece about negotiation internally for a company is setting correct expectations and educating internally about what this process is and isn’t,” Manatt Health partner Ross Margulies said during a recent webinar on lessons learned that Verpora hosted.
“This is different than any other negotiation” because “you can’t walk away” from negotiations with the Centers for Medicare and Medicaid Services. “The best alternative is to get a price adjustment.”
Verpora Head of Negotiation Chris Webber agreed that “power in a negotiation ultimately comes from one source and that’s an option, an alternative. But in this case drug manufacturers did not have that leverage.
“If you can go somewhere else, then you have power in a negotiation,” he said. “That doesn’t exist here.”
‘Anchoring’ A Price
Webber suggested “the only other place that you can gain any sort of power are the human factors … making yourself someone who they think they can do business with.”
If CMS has “only 5% movement” on the price, they may “give you that 5% because of the way you manage that negotiation,” he said. If you remain “anchored” to a core value story while “giving ground” on some issues and “listening to their arguments, you’ve done a great job.”
Webber recommended manufacturers bring a price to their first meeting with CMS, even before receiving the agency’s initial offer.
It is “well understood that we are influenced by the first number we hear within a negotiation, within a decision-making scenario, so not taking the opportunity to anchor a number on the table is a really strong miss,” he said. “If you allow the payer to anchor their number first, you’re always going to be dragging them away from their number” rather than advocating yours.
The participants did not give specifics about which of the 10 drugs undergoing negotiation that they represented. CMS announced the final prices in August. (Also see "A Better Deal: Medicare Discounts Surpass Estimated PBM-Negotiated Rebates" - Pink Sheet, 16 August, 2024.)
CMS guidance allows manufacturers to publicly disclose some information about the process before the agency explains how it arrived at the maximum fair prices for the drugs, which must be published by 1 March 2025, but may be released sooner. (Also see "Medicare Negotiation Final Guidance: No More ‘Gag’ Rules, But Other Changes Fall Short Of Hopes" - Pink Sheet, 3 July, 2023.)
Thirty days after CMS selected the initial drugs for negotiation, manufacturers were required to submit information to the agency establishing the drug’s value, as well as outline research and development spending, production costs, sales and market share, and other elements. Up to three meetings between manufacturers and CMS were allowed, one before the agency’s initial offer and two after.
Because of the short time between the period a drug’s selection is announced and the deadline for data submissions, panelists emphasized the importance of anticipating the process and planning ahead. They also said manufacturers should develop a compelling value story they can use while preparing for CMS questions that veer from the core message.
“I don’t think ‘anchoring’ means ignoring what you are hearing from CMS,” Margulies told the Pink Sheet. “In one negotiation, we developed a list of therapeutic alternatives we thought were appropriate and another list of where we thought CMS might go … because we knew CMS was likely to go beyond the scope of what products were clinically comparable.”
In other words, “stick to your value story, but also be responsive,” he said.
CMS developed its initial offers for the negotiated drugs by comparing them to therapeutic alternatives and their prices. Anticipating CMS would consider generics and drugs in other classes or categories that a manufacturer would not normally count as alternatives was part of the process.
Agree To Disagree And Move On
Manatt Health Partner Erin Estey Hertzog emphasized the importance of “identifying where we could make progress and where we couldn’t,” even for issues involving “deeply held values by the company and core elements of the value story.”
If “CMS wasn’t agreeing, eventually everyone agreed to move on and focus on the areas where we did have leverage,” she said. Hertzog was an attorney in the CMS general counsel’s office from September 2016 to May 2022.
A benefit of having a team of experts involved in the negotiation on the manufacturer’s behalf is “we could sort of bring in our understanding of CMS and some of the political realities” with launching the negotiation process in an election year and amid a flurry of litigation challenging it, Hertzog said.
“We could take advantage of … understanding where CMS is coming from,” she said. “They really wanted to reach a deal. They’re doing this in an election year. They want to make this look like real negotiation.”
“Some of those factors will be different in 2027, but they will be there,” Hertzog added. “Even though it is not a real negotiation, and CMS has things stacked in their favor, there are opportunities to take advantage of the process.”
In announcing the final prices, CMS said for five of the 10 drugs, “the process of exchanging revised offers and counteroffers resulted in CMS and the drug company reaching an agreement on a negotiated price for the drug in association with a negotiation meeting.” In four of those cases, the agency “accepted a revised counteroffer” proposed by the drug company.
A stalemate apparently occurred with the remaining five drugs. CMS sent final offers to those companies in writing, which were accepted. (Also see "Medicare Negotiation Announcement: Discounts From List Price Up To 79%, But Net Savings Unclear" - Pink Sheet, 15 August, 2024.)
Interrogating The Data
Verpora Head of Payers Omar Ali said negotiation technique is a key attribute for manufacturer teams.
“You … need someone in the room to stand up to the interrogation of that clinical data soundly, confidently and not get too shaken,” he said. “Payers sometimes like to make members irate by the questions they ask. It’s like questioning your whole foundation of existence or the whole brand message that you’ve been running with for five years. Payers will shake that down and put holes in the dam.”
Verpora conducted role-playing exercises with clients to practice their responses with Ali acting as the CMS negotiator. At the end, one client said, “I would prefer to negotiate with CMS than with Omar Ali,” quipped Verpora CEO Nick Merryfield, who moderated the webinar.
Ali agreed with other speakers that “incremental benefit is critical in these submissions. It’s not just what is the evidence, it’s how does the evidence compare to other drugs around you.”
Ali also suggested evidence of the drug’s benefit in the Medicare population could influence CMS.
“We know that CMS is very interested in the particular nuances of the Medicare population,” he said. For example, “does your trial affect a certain socio-economic group or certain ethnic group?” If such data is available in a subgroup analyses or even real world evidence, “it was a tangible [benefit] or a win when a manufacturer can do that.”