Medicare’s new guidelines cover how it will conduct the drug price negotiations authorized by the Inflation Reduction Act. Unfortunately, the Centers for Medicare and Medicaid Services is interpreting the law in a way that will discourage companies from finding new uses — sometimes lifesaving new uses — for existing drugs. It will also deter companies from doing research on existing medicines to create improved versions that are more effective and have fewer side effects.
Yet these new versions may be less costly, as well as easier for patients to take and for health professionals to administer. For example, a new version may make it possible to take a pill instead of an injection or take medicine at home instead of coming to a hospital or infusion center.
Passed in 2022, the Inflation Reduction Act empowers Medicare to negotiate prices for specific medicines based on what it considers to be a maximum fair price. Drug manufacturers are required to participate in the program or face enormous financial penalties.
These “negotiations” are already underway for the first 10 drugs, which were selected last year. Fifteen more will be selected this year, with another 15 selected next year, and 20 more each year after that. Only qualifying single source drugs, known as QSSDs, can be considered for the price-negotiation program.
The Inflation Reduction Act defines a qualifying single source drug as one that received FDA approval under a single new drug application or biologics license application, has been approved for at least seven years (for a small molecule drug) or 11 years (for a biologic) and for which there isn’t a generic or biosimilar competitor on the market.
Yet now, CMS has decided on a creative definition for what counts as a qualifying single source drug. Under the new guidelines, it will treat all medications containing the same active ingredient or core molecule as a single QSSD even if they were approved under separate applications. As a result, medications approved at different times in substantially different forms or doses — or even as different drug products to treat various conditions — will be considered to be one QSSD.
For example, say a company makes an oral medication for a rare blood cancer. It later develops that same compound into a topical cream for a chronic skin condition such as eczema. That cream is a new and distinct drug product relative to the cancer pill. But under the new guidelines, Medicare will treat both as one drug and assign them the same price.
This isn’t a theoretical concern. Consider tofacitinib, a drug that was first approved in 2012 to treat rheumatoid arthritis. Later, after years of costly clinical trials, the manufacturer developed an extended-release version of tofacitinib that allowed people to take the medicine once daily instead of twice. The FDA determined that the differences were so significant the company should seek a completely separate marketing application for the new form, which it successfully did in 2016.
The manufacturer went on to conduct further research and development, demonstrating that the medicine also works for psoriatic arthritis, ankylosing spondylitis, and ulcerative colitis. In 2020, the FDA approved tofacitinib for polyarticular course juvenile idiopathic arthritis, an indication that required the manufacturer to develop a new liquid dosage for a medication that had previously been available only as a tablet.
CMS’s broad definition of qualifying single source drug will discourage this kind of post-approval research and development. Pharmaceutical companies need to be able to achieve a return on their investment. Otherwise, they can’t justify investing the time and money required to develop a new medicine — or in this case, find new uses for an existing one. Price controls reduce that financial incentive.
In the case of tofacitinib, if the developer had known the government would subject all new forms of the drug to the same price controls, it likely wouldn’t have invested in the new research that led to a treatment for millions of Americans with psoriatic arthritis and ulcerative colitis, among other conditions.
Nor would a once-a-day version have ever become available. Such a change might seem minor, but numerous studies show that reducing the required number of daily doses significantly improves adherence rates and, in turn, improves patients’ health.
Defining all drugs with the same active ingredient as single QSSDs will especially discourage and disincentivize cancer research. Due to the nature of tumors, it’s common for a drug originally developed to treat one type of cancer to later be used to successfully treat other types. Between 2003 and 2021, the FDA approved 124 new cancer treatments. So far, these drugs have a combined 374 indications, or approved uses.
But it often takes years of real-world prescribing for doctors and scientists to learn that a medicine approved for one cancer can treat another. And the FDA, of course, requires rigorous studies to show that a drug is safe and effective for a new group of patients, especially if a new dosage or formulation is required. By failing to account for these realities, CMS is discouraging companies from investigating potential new forms and uses of existing products. Individuals who could benefit may never get the chance.
The point of the new drug price negotiations is to lower the cost of prescriptions, a worthy goal. But it shouldn’t be implemented in a way that undermines medical innovation. Instead of using its own idiosyncratic definition of qualifying single source drug, CMS should follow the lead of regulators: If a medicine received FDA approval under its own new drug or biologics license application, it should be treated as an individual drug for the purpose of price negotiation. It shouldn’t be lumped together with other medicines just because they share an active ingredient.
Barring that approach, CMS must at the very least ensure that the legally required amount of time has passed before it treats any new drug as eligible for the price negotiation process — seven years for small molecule drugs or 11 years for biologics.
In short, CMS should change course, beginning with this year’s guidelines on price-setting negotiations. Developing novel treatments — even when they build on existing compounds — is expensive and risky. Treating multiple treatments as individual qualifying single source drugs will remove financial incentives to take up the challenge. That will leave us all worse off in the long run as companies stop seeking new uses for existing medicines.
Peter Rheinstein, M.D., J.D., is president of Severn Health Solutions, past president of the Academy of Medicine of Washington, D.C., chairman of the United States Adopted Names Council, chairman of the American Board of Legal Medicine, a delegate to the American Medical Association House of Delegates, and a former president of the Academy of Physicians in Clinical Research.