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The Inflation Reduction Act: Connection to FSS Tracking Customers

Signed into law in August 2022 by President Biden, the Inflation Reduction Act (IRA) is considered a marked shift in how prescription drugs will be priced for Medicare beneficiaries. One of the most impactful changes is the new authority granted to the Department of Health and Human Services (HHS) to directly negotiate prices for branded drugs within Medicare Part D. The implication of this change is critical given the Centers for Medicare & Medicaid Services (CMS) currently stated intent to publish the negotiated prices.


In 2023, HHS announced its IRA implementation strategy and emphasized its intention to utilize a multi-year, phased approach. It is now understood HHS will initially select products based on their total cost to the Medicare program during a specific 12-month period with the initial drug list to include:


• Eliquis

• Enbrel

• Entresto

• Farxiga

• Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill

• Imbruvica

• Januvia

• Jardiance

• Stelara

• Xarelto


According to HHS, the combined cost of these drugs to the CMS program accounts for approximately 20% of the gross cost of covered drug products. The new CMS prices for these products will go into effect January 1, 2026.


Given the selection basis for the first wave of products subject to these required price negotiations, it is believed a similar methodology for future product selection will be used in the subsequent implementation waves with the exception that CMS will expand its view beyond just Medicare Part D to also include drugs covered by Medicare Part B. Taking aim at groups of products with significant costs to the CMS program, CMS has already laid out its intent to negotiate prices for up to 15 drugs each year for the following two years with prices taking effect on January 1, 2027 and January 1, 2028. In the subsequent outyears, CMS will also continue to expand the volume of drugs within the grouping from up to 15 to up to 20 drugs as allowed under the IRA.


While a manufacturer’s Federal Supply Schedule (FSS) contract exists separate and apart from a manufacturer’s Medicare agreement, the impact of these CMS negotiations will ultimately and eventually lower drug prices on the FSS contracts both indirectly and directly. As CMS publicizes these lower prices, commercial payers will have a new data point for consideration in their own price negotiations. When those commercial payers who are identified in the FSS contract as the Tracking Customer receive a lower price, the Tracking Customer ratio will decrease and the FSS contract will be entitled to a correlating percentage discount. As a result, this segment of the federal market (including purchases from the Department of Veterans Affairs (VA) and the Department of Defense (DOD)) will pay a lower price for these products without additional effort.



For drug manufacturers, this means they must carefully negotiate all future Tracking Customers for new products and subsequent follow-on/renewal FSS contracts. It has always been a negotiation goal to achieve a single entity (rather than a class of customer) as the Tracking Customer. With the IRA in play, pharmaceutical manufacturers now must approach Tracking Customer negotiations in a different strategic manner with strong support and evidence for why a single Tracking Customer is most appropriate to better protect their FSS contract price.

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