Drug Price Negotiation Would’ve Reduced Prices, OOP Spending in 2021

If the drug price negotiation program had been in effect in 2021, Part D drug prices would have fallen 63 percent and out-of-pocket spending would have declined 23 percent, research from Mathematica revealed.

The program allows CMS to negotiate the prices of ten Part D-covered drugs with the highest spending. The negotiated prices, to be released in September 2024, will take effect in 2026. In August 2023, the agency announced the ten drugs eligible for price negotiation.

The program states that the ceiling prices may not exceed the lower of the drug’s enrollment-weighted average negotiated price across all Part D plans or the pre-specified percentage of the non-federal average manufacturer price.

Researchers simulated the drug price negotiation process for the ten drugs with the highest spending in 2021 to determine how the program could have impacted prices and Part D out-of-pocket spending.

The ten drugs accounted for 13 percent of Part D spending in 2021. Only three of the drugs were among those that were selected for price negotiation this year: Januvia, Novolog, and Enbrel. Three drugs received FDA approval too recently to qualify for the 2021 list (Eliquis, Imbruvica, and Xarelto), while the remaining four did not meet the spending criteria for 2021 (Farxiga, Entresto, Stelara, and Jardiance).

After applying ceiling prices to the drugs, their prices fell by 63 percent at the point of sale, on average. None of the drugs would have experienced a price reduction of less than 50 percent, with decreases ranging from 50 percent to 76 percent.

Additionally, without any other changes to the Part D benefit, median out-of-pocket spending on Part D drugs would have declined by 23 percent, from $1,250 per beneficiary to $967. However, changes varied by population.

Asian/Pacific Islanders would see the largest percentage decrease of 25 percent, while American Indians/Alaska Natives would see the largest dollar decrease per beneficiary of $523 (24 percent). Non-Hispanic Black beneficiaries would experience the smallest decline in spending in dollars and percentage.

Out-of-pocket spending reductions would have been lower for beneficiaries with disabilities (19 percent) compared to beneficiaries eligible for Medicare due to their age (24 percent) or end-stage renal disease (24 percent).

Men would also experience higher out-of-pocket spending reductions than women (24 percent versus 22 percent).

In addition to the price negotiation policies, the Inflation Reduction Act will impose a cap of $2,000 on beneficiaries’ Part D out-of-pocket spending starting in 2025. This cap would reduce average Part D out-of-pocket spending further in 2021 by 33 percent.

American Indian/Alaska Native beneficiaries would again see the largest dollar decrease of $817 per beneficiary (37 percent). Reductions would be smaller for non-Hispanic Black beneficiaries (32 percent) and those with disabilities (30 percent).

The findings indicate that the price negotiation program will likely make Part D drugs more affordable for Medicare beneficiaries when it goes into effect. However, they also revealed disparities in savings, which may reflect disparities in treatment.

While CMS cannot select drugs for negotiation based on observed disparities, the agency can incorporate equity considerations into its value assessments and preliminary price determinations during the negotiation process—something it plans to do.

“As CMS strives to advance equity as an integral part of its strategic plan, we believe continued attention to understanding and addressing the causes and implications of these differences is warranted as CMS moves through its inaugural Medicare drug price negotiation process,” researchers wrote.