Incorporating information on therapeutic alternatives into the IRA prescription drug negotiations

Weighing decision between drugs

The Inflation Reduction Act (IRA) requires the Secretary of Health and Human Services to consider information on therapeutic alternatives to drugs selected for negotiation. The Secretary should have the requisite information to understand the market position and therapeutic role played by different drugs in the same therapeutic class. To consider the relative importance of a given drug in patient care, the Centers for Medicare and Medicaid Services (CMS) will need to identify therapeutic alternatives, determine their comparative therapeutic advantage for patients (e.g., safety and effectiveness), and incorporate that comparative information into its initial proposed price that will serve as the starting point for negotiation.

This commentary discusses at a high level the issues CMS will need to consider in pursuing each of these three steps along with the necessary data sources to support each step. No specific recommendations on which data should be used are made.


In crafting an initial price proposal for drugs selected to undergo negotiation, CMS will use the Medicare Part D net prices or Part B average sales prices of therapeutic alternatives. CMS is required to consider the clinical benefit of selected drugs relative to their therapeutic alternatives to adjust this starting point up or down.

The guidance CMS released on June 30, 2023, states that CMS plans to identify therapeutic alternatives separately for each of a drug’s indications, including FDA-labeled indications and off-label indications that are “included in nationally recognized, evidence-based guidelines and recognized in CMS-approved Part D compendia.” Based on this guidance, we developed options that CMS can use to evaluate whether certain drugs are therapeutic alternatives.

CMS has also announced an intention to include drugs within and outside the same class of therapeutic alternatives, including generics and biosimilars where appropriate. When there are multiple therapeutic alternatives, the guidance states that “CMS may focus on the subset of therapeutic alternatives that are most clinically comparable to the selected drug.” To identify therapeutic alternatives, CMS has stated that it will use a variety of sources, clinical guidelines and literature, and commonly used drug classification systems. We will suggest options for CMS to consider.

Identifying therapeutic alternatives

CMS’s process for identifying therapeutic alternatives will need to include drugs that may have a different mechanism of action or chemical composition. They will also need to account for the heterogeneity within the therapeutic class.

Identifying drugs with the same chemical or biological properties

Drug classes are typically defined by properties such as chemical composition or mechanism of action. Drugs in the same class are typically used for the same clinical purposes, although there can be variation, particularly in classes that have multiple therapeutic uses. For example, there may be certain populations of patients who cannot use certain drugs in a class.

There are several national and international sources used to identify potential within-class therapeutic alternatives.

Two of these sources are public. The World Health Organization Anatomical Therapeutic Classification (WHO ATC) stratifies drugs into groups based on the therapeutic use, indication, and mechanism of action. FDA has a general classification system, although the categories are broad therapeutic areas and may not group drugs by mechanism of action.

Several compendia have proprietary therapeutic classification systems, including:

  • U.S. Pharmacopeia has developed therapeutic alternatives for many drugs based on chemical structure and an extensive stakeholder feedback process.
  • Multum (Cerner) assigns a therapeutic classification to each drug and each ingredient of the drug using a3-level nested category system: for example, naproxen is categorized under central nervous system agents [level 1], analgesics [level 2], and nonsteroidal anti-inflammatory agents [level 3].
  • First Databank Enhanced Therapeutic Classification System™ is a “drug classification system that provides multiple ways to categorize drugs for easy formulary maintenance and drug selection. It allows drugs to reside in multiple therapeutic classes, with links to drug concepts at different levels of the hierarchy.”
  • The American Hospital Formulary Service (AHFS) Classification from the American Society of Health-System Pharmacists (ASHP) which includes “grouping of drugs with similar pharmacologic, therapeutic, and/or chemical characteristics in a 4-tier hierarchy” and “components that would normally fall outside the scope of AHFS Drug Information but need to be included as a placeholder for specific customers’ needs.”

CMS may use one or several of these compendia to identify drugs within the same class. In most cases, this will be straightforward. However, not all drugs in the same class may carry the same indications, so not all within-class drugs will be therapeutic alternatives for each of a drug’s indications.

Identifying drugs with the same uses/indications

In some cases, other drugs outside the immediate therapeutic class have similar therapeutic uses.  For example, while all statins have the same mechanism of action, other cholesterol lowering agents such as ezetimibe or PCSK9 inhibitors do not.

There are other sources that can be used to identify drugs outside of the class that CMS may wish to consider as therapeutic alternatives:

  1. The Department of Veterans Affairs and the Department of Defense (VA/DOD) have developed practice guidelines that include therapeutic alternatives.
  2. Evidence-based clinical guidelines from recognized scientific and medical organizations.
  3. Peer-reviewed literature directly comparing alternative therapies or systematic reviews of clinical trials comparing therapeutic alternative drug treatments can provide data.
  4. Foreign health technology assessments (HTA) agencies, e.g., those in France and Germany, compare drugs with therapeutic alternatives.

Narrowing the list of therapeutic alternatives  

Not all drugs are therapeutic alternatives for all patients. Therefore, CMS will need to determine criteria for therapeutic alternatives to include in its assessment.

There are several options for selecting relevant therapeutic alternatives:

  1. Include all drugs that are listed as therapeutic alternatives on one or more of the data sources considered above.
  2. Restrict the list to those drugs with the same mechanism of action and those on the FDA list of approved treatments.
  3. Use claims data to determine the frequency with which the two drugs are used interchangeably and select a threshold (e.g., 50%) to define therapeutic alternatives.  Special attention could be given to drugs taken by vulnerable populations.

Adjusting for comparative effectiveness

In some cases, there may be important differences in the effectiveness, safety, or mode of delivery of therapeutic alternatives. CMS will need to take account of these differences when developing their initial price proposals.

To categorize these clinical differences, CMS could assign an ordinal rating of clinical benefit that qualitatively summarizes the totality of its review of existing evidence and any additional comparative effectiveness analyses performed as part of CMS review. For example, France uses a five-point scale to measure the added therapeutic benefit for all newly marketed drugs, with five categories (major, important, moderate, minor, or none). CMS could adapt this approach.

CMS can then use this overall clinical assessment to inform its initial price offer. For example, if a drug is deemed to be less beneficial than its therapeutic alternatives, CMS should negotiate for a lower price because there is a better alternative. If on the other hand, the drug being negotiated is more beneficial than the therapeutic alternatives, then the price would need to be increased to reflect this benefit over the competitors.

Each level of added clinical benefit can then be linked to a price benchmark that is a function of the range of the prices of therapeutic alternatives with that level of benefit. For example, drugs with “major added benefit” compared to therapeutic alternatives could have their negotiated prices set at the statutory ceiling price, while drugs with “minor” or no added benefit could have their initial offer price set at the weighted average price of alternatives or lowest cost alternative, respectively.

There are several sources for determining comparative effectiveness:

  • The VA and DOD conduct comparative effectiveness reviews for specific conditions, such as Post-Traumatic Stress Disorder.
  • The Agency for Healthcare Research and Quality (AHRQ) routinely funds systematic literature reviews and could be commissioned do systematic reviews for the drugs under consideration.
  • The Patient-Centered Outcomes Research Institute (PCORI) has funded large-scale comparative effectiveness studies. These are investigator initiatives and CMS would have to contract for specific studies.
  • The Institute for Clinical and Economic Review (ICER) conducts comparisons of clinical effectiveness based on clinical trial results.
  • Several foreign governments, such as France and Germany, conduct comparative effectiveness studies that inform national price negotiation. CMS could adopt a similar methodology.
  • There are clinical studies that do comparisons and literature syntheses that summarize the results of multiple studies. For example, Cochrane reviews, which are systematic reviews that attempt to identify, appraise, and synthesize all the empirical evidence that meets pre-specified eligibility criteria to answer a specific research question, could be used when available.

Concluding thoughts

The Congress was appropriately concerned that negotiations consider the market position of drugs when the Secretary crafts a price proposal. Formally taking account of the relative therapeutic impacts of market alternatives in price negotiation accords with how well functioning markets work.


  • Acknowledgements and disclosures

    Anderson’s work was supported by a grant from Arnold Ventures to Johns Hopkins University. Rome has received grant funding from Arnold Ventures, the Elevance Health Public Policy Institute, and the National Academy for State Health Policy. Other than the aforementioned, the authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. The authors are not currently an officer, director, or board member of any organization with a financial or political interest in this article.

    The Brookings Institution is financed through the support of a diverse array of foundations, corporations, governments, individuals, as well as an endowment. A list of donors can be found in our annual reports published online here. The findings, interpretations, and conclusions in this report are solely those of its author(s) and are not influenced by any donation.

  • Footnotes
    1. Medicare Drug Price Negotiation Program: Revised Guidance, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2026 (p.144).
    2. Medicare Drug Price Negotiation Program: Revised Guidance, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2026 (p. 145).
    3. Medicare Drug Price Negotiation Program: Revised Guidance, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2026 (p. 145).
    4. PCSK9 inhibitors = proprotein convertase subtilisin/kexin type 9 inhibitors.