Examining Opportunities to Increase Savings From Medicare Price Negotiations

Abstract

Importance: Allowing the US Centers for Medicare & Medicaid Services to negotiate prescription drug prices for Medicare may improve drug affordability.

Objective: To estimate savings from Medicare price negotiation under the Inflation Reduction Act (IRA) and examine opportunities to increase savings.

Design, setting, and participants: This cross-sectional, population-based study used data from 2020 Medicare prescription drug claims. The study was conducted and data were analyzed in 2022.

Exposures: Eligibility for Medicare price negotiation under the IRA and alternative criteria.

Main outcomes and measures: Minimum savings under the IRA's eligibility criteria were estimated and compared with savings within alternative scenarios, including (1) selecting drugs for negotiation based on net spending after rebates rather than gross spending; (2) extending eligibility to drugs with biosimilar or generic competitors; (3) reducing the minimum years since US Food and Drug Administration approval for eligibility; and (4) changing 2 or 3 of these factors. Estimated savings were calculated at different levels of scale-up of price negotiation under the IRA, from 10 Part D drugs in 2026 to 60 Part B and D drugs in 2029. Gross spending was calculated using the US Centers for Medicare & Medicaid Services 2020 Medicare drug spending dashboard. Rebates were estimated using SSR Health data. Information on FDA approvals, generics, and biosimilars was obtained from FDA websites.

Results: Under IRA rules, estimated minimum savings from price negotiation in 2026 for 10 Part D drugs would be $3.2 billion. For 2029 for 60 Part D and B drugs, estimated savings were $16.0 billion. Selecting drugs for negotiation based on net rather than gross spending would be associated with estimated savings of $4.6 billion (a 45% increase) in 2026 and $18.9 billion (an 18% increase) in 2029. Including drugs with generic competitors or biosimilars would be associated with an estimated savings of $6.6 billion (a 109% increase) in 2026 and $24.9 billion (a 56% increase) in 2029. Making both changes would be associated with savings of $9.5 billion (a 200% increase) in 2026 and $28.3 billion (a 77% increase) in 2029. A sensitivity analysis suggested that reducing the required number of years since marketing approval by 2 years would be associated with increased estimated savings of 4% when 10 Part D drugs are negotiated and 12% when 60 Part D and B drugs are negotiated. Changing all 3 criteria would be associated with the greatest increase in estimated savings in 2029 (119% increase when 10 Part D drugs are negotiated and 93% increase for 60 Part D and B drugs).

Conclusions and relevance: The results of this cross-sectional study suggest that adjusting the eligibility criteria for Medicare prescription drug price negotiation to permit inclusion of drugs with biosimilar or generic competitors and selecting drugs based on net rather than gross spending may be a promising approach to substantially increase estimated savings.

Figure 1.. Annual Estimated Medicare Savings From Price Negotiation Under Alternative Eligibility and Product Selection Criteria by Number of Drugs Negotiated

Figure 2.. Total Annual Net Medicare Spending Implicated, by Number of Years Since US Food and Drug Administration (FDA) Approval Among Drugs Exceeding $200 Million in Gross Spending

All drugs with 25 or more years since FDA approval are grouped together in the 25-year bar. Years since FDA approval are calculated as of February 1, 2021, which is the selected drug publication date that aligns with 2020 spending data. The figure includes 73 drugs approved via a biologics license application (BLA), 122 drugs approved via a new drug application (NDA), and 5 drugs approved via an abbreviated new drug application (ANDA) and excludes diabetic pen needles.