Impact of Medicare Fair Price on ASP Based U.S. Payment Systems

Authored by Michael Ryan, PharmD and Rita Numerof, Ph.D.

Rita Numerof and I often discuss various U.S. and Global healthcare payment policies that are insufficiently thought through. When modeling is inadequate prior to implementation or is based on faulty assumptions, the unintended consequences and impacts can be quite negative. We’ve decided to share our thoughts periodically on some of these previous or soon-to-be implemented payment policies.

The first of these reviews looks at the unintended consequences of the IRA’s Medicare negotiations on ASP-based Part B in-office administered products. Under the IRA, the drug selection and negotiation for Part B products is scheduled to start on February 1, 2026, with the Medicare Fair Price (MFP) going into effect for all Medicare patients starting on January 31, 2028. So, this review is especially timely.

Targeted products will include the top ten selling Medicare Part B office-based administered injectable products whose initial FDA approval occurred prior to 2015. The legislation states that the maximum MFP cannot exceed 75% of average non-FAMP (non-federal average manufacturer price) for short monopoly products (9-12 years post initial FDA approval), 65% of average non-FAMP for extended monopoly products (12-15 years post initial FDA approval), and 40% of non-FAMP for long monopoly drug products (16+ years post initial FDA approval). It’s important to note that the final approved MFP can be lower than the mandated maximum MFP but cannot exceed the maximum MFP.

While the Medicare reimbursement rate for negotiated Part B injectable drug products will shift from ASP+6% to the MFP+6%, the current commercial payment model for injectable office-based products is based on Average Sales Price (ASP) plus a fixed percentage mark-up. While this fixed percentage mark-up varies across commercial payers and even between products within the same commercial payer, it is increasingly centered around 6%. The ASP payment system is hypersensitive to price changes and can spiral out of control if the magnitude and speed of pricing changes is significant. This is due to the fact that the ASP system recalibrates pricing actions taken in a given quarter into a newly established ASP two quarters later, and price increases more than 6% could place providers underwater.

If you don’t think an ASP spiral to a reimbursement rate of zero is possible in the current U.S. ASP payment system, we’d refer you to what is already happening in the U.S. ASP reimbursed biosimilar market. For example, the combination of a highly competitive pegfilgrastim biosimilars marketplace, rapid and extreme discounting, and an ASP-based payment system has resulted in Amgen’s Neulasta, Sandoz’s Zieytenzo, Biocon’s Fulphilia, and Spectrum’s Rolvedon all experiencing a 75% reduction in their ASPs within a three-year period with ASPs at or approaching zero.

While an initial reaction might be, “this is great, competition and lower prices/reimbursement rates is what biosimilars is all about”, we’d note that this has created an unstable product market. Many oncologists were left administering biosimilar pegfilgrastim products whose reimbursement rates had fallen below the price at which they purchased them. Clearly this is not a sustainable situation in any market. In addition, this dynamic has decreased investment in the biosimilars marketplace itself and eventually will likely result in a biosimilar marketplace in the U.S. with only 1-3 manufacturers. The net effect is less competition, biosimilar shortages, and higher biosimilar pricing.

Let’s project what this might entail going forward. Conservatively assume an MFP for a hypothetical Part B product was set at a 40% discount to the product’s ASP. Once MFP reimbursement goes into effect the manufacturer would have to provide an additional ~36% discount to keep providers in a breakeven situation in which they could buy the product at a price equal to the reimbursement rate. However, two quarters later the 36% discounts they gave to providers to enable breakeven would then lower the new ASP reimbursement rate by 36%: thereby forcing the manufacturers to give an additional 36% discount to keep providers whole. The cycle would continue if manufacturers discounted to just keep providers whole. In this scenario ASP would spiral to zero within three years.

As currently proposed, MFP will negatively impact ASP and make the system unsustainable in the commercial segment for IRA negotiated Part B drug products. Manufacturers will simply not be able to keep pace with the level of discounts required to keep the acquisition cost below an ASP+6% commercial model. This in turn will cause significant disruptions in patient treatment across the U.S., which will most importantly be seen in cancer care.

In addition, because MFP discounts are not currently exempt from Medicaid Best Price or ASP, MFP will have the unintended consequence of leading to significantly higher Medicaid rebates and decreased 340B pricing. Given CMS’ new ruling on penny pricing, manufacturers could be forced to pay CMS for every unit sold in the 340B channel, thereby resulting in further significant disruptions in specialty care.

The intent of IRA’s Medicare negotiation legislation was to reduce the price that Medicare pays for designated Part B products to a “fair” level. It was not intended to reduce the reimbursement rates in the commercial segment, or in the Medicaid and 340B segments, to near zero or to put providers underwater. Yet that is what is likely to occur if further modifications to these payment systems do not occur. CMS and commercial payers need to better model the implications of MFP on their drug payment systems and look to significantly modify their current payment systems prior to the January 31, 2028 implementation date for MFP for Part B products.

For more information on the impacts of the IRA on Part B negotiated products and what actions manufacturers and payers should take to avoid predictable and widespread disruptions in specialty care in the U.S. please either get in touch with me or Rita Numerof. You can also visit our respective websites at KoiosEC.com or NAI-Consulting.com to learn more.