Medicare Could Save an Additional $10 Billion Annually Across 10 Drugs by Using a Therapeutic Reference Pricing Approach in Upcoming Price Negotiations

Newswise — Lawrenceville, NJ, USA—November 7, 2023—Value in Health, the official journal of ISPOR—The Professional Society for Health Economics and Outcomes Research, announced today the publication of a study showing that United States Medicare could save up to an additional $5-$10 billion dollars annually across 10 drugs if, in upcoming price negotiations with manufacturers, it negotiated prices using a therapeutic reference pricing approach rather than using the statutory ceiling price alone. The report, “Estimated Savings From Using Added Therapeutic Benefit and Therapeutic Reference Pricing in United States Medicare Drug Price Negotiations,” was published in the November 2023 issue of Value in Health. 

“Medicare will begin negotiating prices for top-selling drugs in 2023, a process to be based in part on the effectiveness of the drugs selected for negotiation compared to therapeutic alternatives and the costs of those alternatives,” said lead author Michael J. DiStefano, PhD, Department of Clinical Pharmacy, Skaggs School of Pharmacy and Pharmaceutical Sciences, University of Colorado Anschutz Medical Campus, Aurora, Colorado, USA. “But since the United States does not have a public health technology assessment entity that determines comparative effectiveness, the Centers for Medicare & Medicaid Services (CMS) will need to conduct its own assessments for the drugs being negotiated. In this study we draw on aspects of the French system for assessing comparative effectiveness to model an approach that can be used to identify a starting point for the Medicare negotiation process.” 

Based on the criteria published in the Inflation Reduction Act (IRA), researchers identified 15 Medicare Part D drugs likely to be selected for the first round of IRA-directed price negotiations. They identified evidence of comparative effectiveness for these target drugs based on reports from France’s National Authority for Health (Haute Autorité de santé or HAS). For the 10 drugs with minor or no added benefit as determined by HAS (7 of which were included in the list announced by the government on August 29, 2023), they identified a set of therapeutic alternatives based on the French reports and US clinical guidelines. For each of these 10 target drugs, the authors calculated potential annual savings from using a starting point in negotiations based on costs of therapeutic alternatives rather than using the statutory ceiling price alone. The beneficiary-weighted mean net annual spending per beneficiary across all therapeutic alternatives was lower than the statutory ceiling price for 9 of the 10 target drugs, and the lowest cost alternative net annual spending was lower than the statutory ceiling price for all 10 target drugs. 

Potential individual-drug-level savings from using a starting point in negotiations based on average spending across therapeutic alternatives ranged from $186,541,340 to $2,173,441,197. Potential individual-drug-level savings from using a starting point based on the lowest cost alternative ranged from $199,872,163 to $3,605,904,765. 

Potential collective savings (for all 10 target drugs) from using a starting point in negotiations based on average spending across therapeutic alternatives was $4,963,835,546, 38% of total spending on the 10 target drugs. Potential savings from using a starting point based on the lowest cost alternative was $9,754,892,250, 75% of total spending on the 10 target drugs. 

“This study demonstrates the potential for additional savings of using a therapeutic reference pricing approach linking comparative effectiveness and costs of therapeutic alternatives to inform the starting price for negotiations,” said DiStefano. “We found that CMS could save up to an additional $10 billion annually across 10 drugs if negotiating prices on this basis rather than using the statutory ceiling price alone. We do not recommend or expect that CMS will exclusively rely on assessments of comparative effectiveness from France or other countries. CMS should, however, consider reviewing the methodologies used by HTA bodies in other countries to inform its own process for assessing comparative effectiveness.” 

About the IRA-directed Medicare Price Negotiations
The Inflation Reduction Act (IRA), enacted in August 2022, instructs the US Centers for Medicare & Medicaid Services (CMS) to negotiate prices in Medicare for 10 top-selling drugs beginning in 2023, and more in subsequent years. The IRA states the ceiling price for Part D negotiated drugs will be the lower of (1) the drug’s enrollment-weighted negotiated price net of all price concessions, or (2) a percentage of the non-federal average manufacturer price that varies depending on FDA approval date. For each drug selected for the negotiation program, CMS will use the Medicare Part D net prices or Medicare Part B average sales prices of the drug’s therapeutic alternatives as the starting point for determining an initial offer price (if lower than the statutory ceiling price). CMS will then adjust this starting point up or down based on the selected drug’s clinical benefit compared to these therapeutic alternatives and other factors. However, Medicare does not specify exactly how it will carry out this adjustment. 

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ABOUT ISPOR
ISPOR—The Professional Society for Health Economics and Outcomes Research (HEOR), is an international, multistakeholder, nonprofit dedicated to advancing HEOR excellence to improve decision making for health globally. The Society is the leading source for scientific conferences, peer-reviewed and MEDLINE^®-indexed publications, good practices guidance, education, collaboration, and tools/resources in the field.
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ABOUT VALUE IN HEALTH
Value in Health (ISSN 1098-3015) is an international, indexed journal that publishes original research and health policy articles that advance the field of health economics and outcomes research to help healthcare leaders make evidence-based decisions. The journal’s 2022 impact factor score is 4.5 and its 5-year impact factor score is 6.2. Value in Health is ranked 8th of 87 journals in health policy and services, 21st of 105 journals in healthcare sciences and services, and 69th of 380 journals in economics. Value in Health is a monthly publication that circulates to more than 10,000 readers around the world.
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