Initial insights from Inflation Reduction Act IPAY 2027 negotiation outcomes

Initial Price Applicability Year (IPAY) 2027 results have been released. We compare these negotiated prices with the results from IPAY 2026. 

The Centers for Medicaid and Medicare Services (CMS) recently released the outcomes from the latest round of negotiations as part of the Inflation Reduction Act (IRA). This round of negotiations was particularly interesting for a number of reasons.

To begin with, it was the first round of negotiations under a new administration in the U.S. government. Second, the Trump administration has made international price referencing a key theme in discussions around pharmaceutical prices in the U.S. And finally, for the first time, we can observe the outcomes for negotiated drugs which could have therapeutic alternatives from a prior round of negotiations.

As expected, CMS was quick to point to superior outcomes from this round of negotiations compared to those under the Biden administration. CMS Administrator Mehmet Oz stated, “This year’s results stand in stark contrast to last year’s. Using the same process with a bolder direction, we have achieved substantially better outcomes for taxpayers and seniors in the Medicare Part D program: not the modest or even counterproductive ‘deals’ we saw before.”

Under both administrations, CMS announced substantial discounts off the Wholesale Acquisition Cost (WAC) prices which ranged from 38-84% for IPAY 2027 and 38-79% for IPAY 2026. However, the true net savings to Medicare is substantially less due to the rebates manufacturers are already paying Part D plans for formulary placement.

In addition, manufacturers are also responsible for paying up to a 20% rebate on gross costs as part of the Manufacturer Discount Program (MDP) which replaces the previous Coverage Gap Discount Program (CGDP). Manufacturers are not liable for the MDP discounts for drugs which go through IRA negotiation, which further reduces the government’s savings. According to CMS the true savings as a result of these negotiations were 22% from IPAY 2026 and 36% for IPAY 2027.

Little is known about CMS’ rationale for the negotiated prices as this point in time, but more information will be forthcoming on or before March 1, 2027. However, few details were released after the negotiations for IPAY 2026. This time, CMS has promised more transparency.

The information we do know is how often CMS and the manufacturers agreed to a negotiated agreement and whether that revised offer was proposed by the manufacturer or CMS. For those manufacturers who are unable to come to a negotiated agreement, they must eventually accept CMS’ final offer by the statutory deadline, or all of of their products will no longer be eligible for Medicare reimbursement.

As part of the IPAY 2026 negotiation, 5 of the 10 manufacturers agreed to a price before the statutory deadline, while the remaining 5 were unable to come to an agreement and therefore accepted CMS’ final offer. Similarly, for IPAY 2027, CMS and manufacturers reached an agreement for 8 of the 15 drugs as part of the negotiation meetings, while in 7 cases, manufacturers accepted the final offer.

For those drugs which reached a negotiated agreement for the IPAY 2026 cycle, CMS accepted the manufacturers’ revised offer in 4 out of 5 cases. For the IPAY 2027 cycle, CMS accepted the manufacturers’ revised offer in 7 out of 8 cases. In summary, from this limited amount of information, the negotiation process appears generally similar across the two cycles.

US internal rather than international price referencing

Despite the prominence of international price referencing and ‘Most Favored Nation’ pricing, we do not see much evidence that this played a role in the Maximum Fair Price outcomes as described previously. However, in this round of negotiations, we do see two examples where negotiated outcomes may have been impacted by the results of prior negotiations (Table 1).

The first example of the BTK inhibitors is an interesting case study as Imbruvica had the lowest % discount off the WAC price as part of the IPAY 2026 negotiations. The 30-day baseline WAC price as calculated by CMS for Calquence is actually already 5% less expensive than that of Imbruvica. Despite this cost difference in the list price, Calquence’s MFP is a greater discount from the WAC (40% vs. 38%) and is also 8% less expensive than the MFP for Imbruvica in absolute terms (Table 2). 

At this time, we do not know the rationale for CMS’ negotiating approach for Calquence compared to Imbruvica, but one can certainly infer that the internal price reference of Imbruvica played a strong role in the negotiated outcome for Calquence. In many international markets, second-to-market drugs are often forced to accept a lower price than the first-to-market brands, and a similar dynamic may have played a role here.

The second case study is particularly interesting because of the comparison for a combination product (sitagliptin + metformin compared to sitagliptin) as well as the comparison between the two DPP-4 inhibitors in the same negotiation round.

Janumet / Janumet XR and Januvia both have a similar 30-day WAC baseline price as calculated by CMS (Table 3). However, Janumet/Janumet XR have a greater discount off the WAC and a lower MFP compared to Januvia. This is despite the fact that all three products contain the same active, on patent ingredient (sitagliptin).

Even though Janumet/Janumet XR is a combination with metformin, which is off patent, the MFP is actually 29% less than the MFP negotiated for Januvia as part of the prior negotiation cycle. As for the first case study, we do not know CMS’ rationale, but one can surmise that CMS may have been attempting to take a stronger approach to achieve greater price discounts in this example.

Metformin is very commonly prescribed to patients diagnosed with diabetes, so it will be interesting if payers in 2027 will attempt to encourage patients to take the less costly Janumet over a more expensive free combination of Januvia and metformin.

Also interesting for the DPP-4 class in IPAY 2027 is the MFP outcomes for Tradjenta and Janumet/Janumet XR relative to each other. The 30-day MFP for Tradjenta is $2 less than the 30-day supply for Janumet/Janumet XR. As metformin is off patent and available as a generic drug, one could hypothesize that CMS priced the DPP-4 component of the two therapies exactly at parity and simply allowed a very small premium for Janumet / Janumet XR to account for the metformin component of the fixed combination.

What these insights mean for the future of IRA negotiations

While the overall choreography of the negotiation process for IPAY 2027 appears generally similar to IPAY 2026, there is some evidence that the administration did take a slighty harder stance.

In the case of Calquence, an oral oncology agent, the MFP resulted in a modest discount to the previously negotiated Imbruvica. However, in the case of Janumet/Janumet XR and Tradjenta, these drugs have MFPs that are ~30% less than the previously negotiated Januvia, despite a similar mechanism of action and in the case of Janumet, one of the same active ingredients.

Our Simon Kucher “Center of Excellence for MFN” will continue to follow all developments around Most Favored Nation pricing and its potential impact on all channels in the United States. Stay tuned!