Report Shows Small Share of Drugs Account for Majority of Medicare Spending

by Peter Johnson

An April 19 analysis by the Kaiser Family Foundation (KFF) found that a small number of drugs accounted for the majority of drug spending in Medicare, and that negotiating drug prices could lower overall spending in the program.

According to the report, the 250 top-selling drugs in Medicare Part D with one manufacturer and no generic or biosimilar competition accounted for 60% of net total Part D spending, while the top 50 drugs covered under Medicare Part B accounted for 80% of total Part B drug spending.

While the report concludes that negotiating drug prices could save the public money, there is a potential tradeoff to negotiating all drug prices, report coauthor Juliette Cubanksi, Ph.D., tells AIS Health. Cubanski is deputy director of KFF's Program on Medicare Policy.

KFF cannot estimate "what the administrative burden would be for HHS in the process of negotiation," Cubanksi explains, observing that Part D covers about 3,000 drugs, including many generics.

"Negotiating the price of 3,000 prescription drug products is going to be a massive undertaking that for the majority of those products is not likely to get you much savings," she adds.

"You're likely getting the most bang for the buck if you focus on drugs that account for a relatively large share of program spending and that don't have a generic or biosimilar equivalent," Cubanski says. "If you've only got one manufacturer and the price is pretty high, that makes an easier target than inexpensive products with multiple, competing manufacturers."

However, there are additional considerations to price negotiation. Cubanski says that it's "entirely possible" that lower prices in Medicare could result in manufacturers ratcheting up prices in the commercial market to offset losses. Cubanski also observes that pharma companies have argued they would not be able to fund as much research and development if their Medicare profits were eroded, though she is not sure that is the case.

"We would not necessarily be able to say 'there are fewer drugs now than there were five years ago because of the negotiation process,'" she points out.

From RADAR on Drug Benefits