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.

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