OBJECTIVES: The Inflation Reduction Act (IRA) became law in August 2022 and includes a section on Prescription Drug Pricing Reform. Starting from 2026, when single-source drugs with the largest total expenditures in Part B and D of Medicare and with the exclusivity period exceeded are ‘selected’, manufacturers must then negotiate a ‘maximum fair price (MFP)’. This study aimed to develop a conceptual modeling framework to assess what an MFP offer from CMS might be and help manufacturers develop a counter-offer.

METHODS: Relationships between factors outlined in section 1194(e) of the IRA are proposed and possible evidence needs by factor are suggested. Scenarios are considered for drugs/biologics that have chronic, single or multiple indications as well as re-purposing of drugs. We assessed pricing negotiation frameworks in 5 HTA markets to investigate the applicability of the proposed framework outside of the US market.

RESULTS: The framework includes 9 factors (research and development costs, unit costs, federal financial support, patent applications/exclusivities, US revenue and sales volume, comparative therapeutic advancement, prescribing information, comparative effectiveness, unmet medical need). Comparative effectiveness includes protection of vulnerable persons. Relationships between underlying factors (e.g. revenue and cost-effectiveness) could lead to a considerable reconsideration of pricing frameworks such as value-based pricing, a growing importance of cost-effectiveness models, and budget impact models with substantial influence on price in the US. Single/multiple indication(s) and repurpose scenarios also estimate the variable impact of different factors (e.g. research and development costs).

CONCLUSIONS: Anticipating its implementation, our modeling framework will allow manufacturers to develop an optimal MFP based on the factors provided by Prescription Drug Pricing Reform and strategize pre-launch activities in preparation for potential negotiations with the Centers for Medicare & Medicaid Services. Moreover, this framework could also be useful across different markets that have similar pricing negotiation frameworks (e.g. Germany) being used during the reimbursement decision-making process.