Adjusting Medicare Drug Price Negotiation Criteria May Increase Savings

April 19, 2023 - Adjusting eligibility criteria for Medicare prescription drug price negotiation under the Inflation Reduction Act to include drugs with biosimilars and allow for drug selection based on net spending was associated with increased estimated savings, a study published in JAMA Internal Medicine found.

The Inflation Reduction Act of 2022 passed a provision allowing CMS to negotiate prescription drug prices for Medicare, starting with ten drugs in 2023 and increasing to 60 during the following four years. Negotiated prices will take effect in 2026 for Part D drugs and 2028 for Part B drugs.

Under the legislation, CMS must abide by specific criteria when selecting drugs for Medicare price negotiation. The drugs must be ranked by total gross Medicare spending and exclude those not in the top 50 drugs by total spending for Part D or Part B.

Additionally, the criteria exclude drugs that account for less than $200 million in annual Medicare spending, have a generic or biosimilar alternative, or received initial FDA approval less than seven years before the eligibility criteria are applied for New Drug Application (NDA) drugs or less than 11 years for Biologic License Application (BLA) drugs.

Researchers used the CMS 2020 Medicare drug spending dashboard to evaluate how alternative eligibility and drug selection criteria would impact potential net savings.

The study compared a scenario following the current criteria to three alternatives.

First, researchers chose drugs for negotiation based on those ranked by total net spending instead of gross spending. Second, they eliminated the Inflation Reduction Act’s single-source requirement that excludes drugs with available biosimilars or generic competitors. Third, they shortened the minimum number of years since FDA approval to five years for NDA drugs and nine years for BLA drugs.

Under the current selection criteria, price negotiations for ten Part D drugs would lead to $3.2 billion in estimated savings in 2026. Six of the drugs already had rebates high enough that negotiation would not generate any savings. When negotiation is expanded to 60 drugs across Parts B and D in 2029, the estimated minimum annual savings is $16 billion, with 31 drugs generating no savings.

Only 11 of the top 20 drugs by 2020 gross spending were in the top 20 by net spending. Ranking by net spending was associated with a 45 percent in increased savings when ten Part D drugs were negotiated. This brought the estimated savings to $4.6 billion. When negotiating prices for 60 Part D and B drugs, the estimated savings increased by 18 percent to $18.9 billion.

Estimated savings increased by 109 percent to $6.6 billion for ten Part D drugs when the single-source requirement was removed. Savings rose 56 percent to $24.9 billion when 60 drugs were negotiated.

Reducing the number of years since FDA approval by two years was associated with a 4 percent increase in savings when ten Part D drugs were negotiated and a 12 percent boost when 60 drugs were negotiated.

While these three alternatives alone resulted in higher savings, changing two or three criteria together led to the most significant growth in savings.

For example, eliminating the single-source requirement and ranking drugs by net spending was associated with estimated savings of $9.5 billion for the first ten drugs, indicating a 200 percent boost from savings under the current policies. Estimated savings increased 77 percent to $28.3 billion for 60 drugs.

Ranking drugs by net spending and reducing the number of years since FDA approval requirement was associated with a 46 percent increase in savings for the first ten drugs and a 29 percent increase for 60 drugs.

The greatest increase in estimated savings occurred when all three criteria were changed, with savings growing 119 percent for ten Part D drugs and 93 percent for 60 drugs.

While these policy changes to the Inflation Reduction Act could face pushback from politicians and pharmaceutical companies, the findings highlight how the adjustments could lead to significantly higher savings from drug price negotiation.