Featured Infographic   Medicare Drug Price Negotiation Simulation Shows Substantial Savings, Despite Restrictions   The U.S. will likely save billions of dollars in the first few years of Medicare drug price negotiation — a provision of the Inflation Reduction Act (IRA) — suggests a recent study published in JAMA Health Forum. Acting as though the IRA had been implemented from 2018 to 2020, researchers from Harvard Medical School and Brigham and Women’s Hospital created a simulation of the drug selection process, and found that Part D and Part B drug spending would have been reduced by 5% — $26.5 billion — over those three years.   Overall, 40 drugs were selected. CMS’s criteria are strict — spending on each drug must exceed $200 million in the year prior to its selection, and products must have been on the market for at least nine years (or 13, if the drug is a biologic). Selected therapies cannot have any generic or biosimilar alternatives, and orphan drugs and plasma-derived products are also ineligible. Then, the negotiated price must fall below a drug’s “ceiling price,” which is determined by the lesser of two figures: the average net price of a drug after its existing rebates and discounts, or between 40%-75% of the drug’s nonfederal average manufacturer (non-FAMP) price, depending on the drug’s age.

Click to enlarge   The study authors pointed out that such a stringent selection process will hamper savings potential. Drugs must be chosen in order of highest spending, which could create missed opportunities if costlier therapies get generic competition before a negotiated price goes into effect. This happened with three drugs in the simulation: Crestor, Renvela and Ranexa (see chart, below). Meanwhile, drugs like AbbVie’s Humira and Pfizer’s Lyrica generated some of the greatest savings ($5.9 billion and $1.9 billion, respectively) in the simulation, but they won’t be eligible for price negotiation in the real world. That’s because Lyrica’s first generics launched in 2019, while Humira’s first biosimilar, Amgen Inc.’s Amjevita, launched last month, with more to follow.   The study authors also noted that negotiation could create “unanticipated market effects” if CMS selects one drug in a particular class, but not another. Manufacturers could feel pressured to match government-negotiated prices, but they could also leverage payer rebates to maintain higher prices. This “could create situations in which negotiated rebates for non-selected drugs encourage Part D plans to offer a preferred formulary position for non-selected competitors carrying higher prices for patients,” the authors wrote. Drugmakers could also launch new formulations of existing products to avoid selection.   Click to enlarge   *Generic competition occurred after drug selection, but before the negotiated price would have taken effect two years later. SOURCE: “Simulated Medicare Drug Price Negotiation Under the Inflation Reduction Act of 2022,” JAMA Health Forum, Jan. 27, 2023   From Radar on Medicare Advantage Learn more about subscribing to AIS Health's publications.