Medicare 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.

© 2024 MMIT
Carina Belles

Carina Belles

Carina has been covering public-sector health care since 2018. As a data reporter for Radar on Medicare Advantage, she creates infographics and data stories on issues impacting Medicare, Medicaid and Part D. She also develops AIS Health Daily, a free daily newsletter that showcases AIS’s strong reporting across our four publications and parent company Norstella’s suite of market access and data solutions. Prior to joining the editorial team, she managed Medicare and Medicaid data for the Directory of Health Plans, AIS’s industry-standard health coverage database. She graduated from Ohio University with a B.S. in Journalism.

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