Medicare drug price negotiation: implications

Home/Policies & Legislation | Posted 04/05/2023 post-comment0 Post your comment

In 2022, The Inflation Reduction Act (IRA) was signed into law in the US. This sets out to empower the US Secretary of Health and Human Services (HHS) to develop and implement methods and a process to negotiate a limited number of prescription drug prices in the Medicare programme directly with manufacturers [1]. A commentary by Dr Sean D Sullivan of the University of Washington School of Pharmacy, published in Value in Health, offers insights into the implications of Medicare drug price negotiation [2].

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Under the negotiation programme, the US government will select 10 Part D drugs for negotiation for initial price applicability in year 2026, and scale up to 20 Part B and Part D drugs by 2028 [2]. 

Implications on US payer budgets
Sullivan’s commentary highlights that the annual spending on pharmaceuticals in the Medicare Part D and Part B programmes currently exceeds US$145 billion and US$37 billion, respectively. The top-selling drugs account for a large portion of this spending. It is noted that the implementation of Medicare price negotiation could save US$98.5 billion over 10 years, but at approximately 5.4% of total drug spend, it may not have a significant impact on the pharmaceutical industry overall. However, if more drugs were added to the eligible group over time, the pharmaceutical industry may be impacted. It is hypothesised that manufacturers may increase list prices, particularly for drugs targeted at older Americans, in response to price negotiation. In addition, the private sector may follow Medicare's lead in payment innovations. Overall, the long-term impact of Medicare price negotiation on global pharmaceutical prices and willingness to accept price concessions in other markets remains unclear.

Implications on pharmaceutical industry
Critics of drug price controls argue that actively managing prices could stifle innovation, as the pharmaceutical industry relies on revenue from sales to invest in future R & D. Although lower revenue from price negotiation will likely mean fewer resources for the industry, how companies choose to manage and redirect fewer resources remains a question. Some suggest that the pharmaceutical industry may choose to invest in innovations that target rare and orphan diseases, vaccines and diseases primarily affecting the non-Medicare population. Industry could also respond by eliminating, reducing, or redirecting investments in current or future products. Price negotiation is unlikely to affect the US’s position as the most important market for the pharmaceutical industry. It is notated that, the law does not target new entrants, with negotiation-eligible products being on the market for between 7 to 11 years before they qualify for consideration, this allows time for companies to set list prices, establish market access and generate revenue. Spill over effects in other countries may include industry attempting to reverse or modify strict reimbursement and pricing policies in other countries to preserve overall profit margins, or other jurisdictions could further refine their own price negotiations, leading to a formalization of price discounting and benchmarking.

Implications on comparative effectiveness and value for money considerations
Sullivan discusses the potential collection and integration of comparative clinical effectiveness and cost-effectiveness information into the maximum fair price (MFP) determination process by Center for Medicare and Medicaid Services (CMS). The law restricts the use of evidence from comparative clinical effectiveness research in a manner that treats the life extension of elderly, disabled, or terminally ill individuals as of lower value. Although not explicitly restricting the use of cost-effectiveness analyses for MFP determination, there is uncertainty about whether CMS will collect and consider data from cost-effectiveness analyses over the long term. Dr Sullivan suggests that CMS may reference ratings of relative clinical benefit from France and Germany as part of the assessment and negotiation process, but CMS must develop transparent rules and processes for engaging with industry and other agencies on evidence submissions. 

The commentary also asks the question ‘What next?’ and considers the implementation, using reference prices and the legal and political considerations of Medicare price negotiation [3].

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A small number of drugs account for most of Medicare spending

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1. GaBI Online - Generics and Biosimilars Initiative. New guidance for Medicare Drug Price Negotiation Program []. Mol, Belgium: Pro Pharma Communications International; [cited 2023 May 4]. Available from:
2. Sullivan SD. Medicare drug price negotiation in the United States: implications and unanswered questions. Value in Health. 2023;26(3):394-9.
3. GaBI Online - Generics and Biosimilars Initiative. Medicare drug price negotiation: what next? []. Mol, Belgium: Pro Pharma Communications International; [cited 2023 May 4]. Available from:

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