CMS Finalizes Third Round of Medicare Drug Price Negotiations with Expanded Orphan Drug Exclusions
Key Insights
CMS has finalized guidance for the third round of Medicare (search) drug price negotiations, expanding orphan drug exclusions to preserve development incentives for rare disease treatments.
The updated framework incorporates Medicare (search) Advantage encounter data into Part B drug selection calculations, creating a more comprehensive picture of drug spending across Medicare programs.
Up to 15 medications will be selected for negotiation by February 1, 2026, with negotiated prices taking effect in 2028, while vaccines (search) remain eligible based on antigen components.
CMS Administrator Mehmet Oz announced the finalization of significant changes to Medicare (search)'s drug price negotiation program, marking a pivotal expansion that will incorporate Part B medications and introduce renegotiation mechanisms for previously negotiated drugs. The updated guidance, released September 30, reflects extensive stakeholder feedback and aims to balance cost containment with pharmaceutical innovation incentives.
Expanded Orphan Drug Protections
The most substantial change involves broadened exclusions for orphan drugs (search), designed to preserve incentives for developing treatments for rare conditions affecting smaller patient populations. This expansion gained further momentum through the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, which significantly expanded orphan drug exemptions under the negotiation program.
According to the Congressional Budget Office's analysis, these expanded exemptions could cost Medicare (search) nearly $5 billion in lost savings over the next decade. The OBBBA clarifies that drugs designated for one or more rare diseases (search) or conditions are now entirely exempted from negotiations, even if they later receive approval for more common conditions.
Part B Integration and Data Enhancement
For the first time, the negotiation program will extend beyond Part D medications to include certain drugs payable under Medicare (search) Part B, typically medications administered in hospitals or physician offices. CMS has updated its methodology for calculating total drug expenditures by incorporating both Medicare Advantage encounter data and traditional fee-for-service claims data, creating what the agency describes as "a fairer and more accurate picture of drug spending."
This enhanced data integration addresses previous concerns about incomplete spending calculations and ensures that high-cost medications across Medicare (search)'s various payment structures are properly evaluated for negotiation eligibility.
Vaccine Eligibility Framework
Vaccines (search) will remain eligible for price negotiations, but CMS has refined the selection criteria to base eligibility on the vaccine's antigen components rather than broader categorizations. This approach acknowledges the unique dynamics of vaccine development and manufacturing, where multiple products may share similar components but serve different clinical purposes.
Timeline and Selection Process
CMS will announce up to 15 medications eligible for the third round of negotiations by February 1, 2026, with negotiated prices scheduled to take effect in 2028. The agency will simultaneously announce any drugs selected for renegotiation from the first two cycles of negotiations.
The selection process will now include enhanced transparency measures, with CMS planning to publish a list of up to 50 top negotiation-eligible drugs ranked by combined total expenditures under Part B and Part D. This expanded disclosure aims to provide stakeholders with greater visibility into the selection methodology.
Renegotiation Framework
The third cycle introduces a systematic approach to renegotiating previously negotiated drug prices. Drugs automatically eligible for renegotiation include those that have changed monopoly status to become long-monopoly drugs (FDA-approved for at least 16 years) or extended-monopoly drugs (FDA-approved for 12-16 years).
CMS will also consider drugs for renegotiation if they have received new FDA-approved indications or have been added to nationally recognized, evidence-based guidelines. Additionally, drugs showing material changes in Social Security Act Section 1194(e) factors may qualify for renegotiation if the new price would represent a 15% or greater change from the current maximum fair price.
Stakeholder Engagement Initiatives
To enhance public participation, CMS plans to host up to 15 patient-focused roundtable events and town hall meetings in Spring 2026. These sessions will gather input from patients, advocacy organizations, caregivers, practicing clinicians, and researchers regarding drugs selected for negotiation or renegotiation.
Implementation Challenges
The expanded orphan drug exclusions present both opportunities and challenges for the program's cost-containment objectives. While preserving innovation incentives for rare disease research, these exclusions may limit the program's ability to negotiate prices for high-cost medications that serve both orphan and non-orphan populations.
CMS Administrator Oz emphasized the agency's commitment to balancing these competing priorities: "We've listened to stakeholders, and their feedback helped us make the Negotiation Program more transparent, more workable for manufacturers and more responsive to the needs of Medicare (search) beneficiaries."
The finalized guidance represents a significant evolution in Medicare (search)'s approach to drug pricing, expanding both the scope of eligible medications and the mechanisms for ongoing price adjustments while maintaining protections for rare disease drug development.