OBJECTIVES:

The Inflation Reduction Act (IRA) allows Medicare to negotiate prices, leading to a Maximum Fair Price (MFP). Interestingly, the IRA leaves criteria for the MFP to the negotiation parties. This mirrors Germany post 2011. That analysis explores how a potential MFP can be derived, based on German experience, using arbitration board decisions.

METHODS: The analysis reviews all 63 published arbitration board decisions. Key criteria for decision making are extracted and condensed. These criteria are then matched with the IRA.

RESULTS: For products with no additional benefit the negotiated price is around the same level as the comparator. Prices for products with additional benefit are based on: (a) evidence over comparator, (b) price of alternatives, (c) international prices. (b) and (c) are weighted averages, (a) is based on the price of the comparator plus an arbitrary premium. All components are then weighted arbitrarily. In case of subpopulations, respective prices per subpopulation are calculated and aggregated.

Price negotiation under IRA rests on manufacturer-specific data: R&D costs and financial aid, cost of goods sold, market exclusivity, and revenue and sales. This data allows for a cost minimum based on variable costs plus attributable fixed cost per unit.

Besides, evidence about alternative treatments is also relevant under IRA: therapeutic advance over alternatives and their respective costs, prescribing information, comparative effectiveness on specific populations, and unmet need. German experience suggests that costs of these alternatives can be utilized with an arbitrary premium depending on the therapeutic advance, and reference to similar cases. If therapeutic advance varies per subpopulation, this can be accounted for using the weighting established for Germany. Unmet need can also be addressed by precedent of similar cases.

CONCLUSIONS: Although IRA is short on what constitutes an MFP, German experience shows how such a price can easily be determined based on the information required.