New Analysis Suggests Current Rebates Will Influence Medicare Savings for Negotiated Drugs

For Medicare to achieve projected savings, drugs prices negotiated under the Inflation Reduction Act will have to fall well below the negotiation ceiling prices, finds a recent analysis published in the Journal of Managed Care + Specialty Pharmacy.

Inmaculada Hernandez, Pharm.D., Ph.D.

“For drugs that have rebates exceeding the minimum discounts specified in the Inflation Reduction Act, savings depend on the ability of the Center for Medicare and Medicaid Services to negotiate prices beyond those established in the IRA,” Inmaculada Hernandez, Pharm.D., Ph.D., lead study author and professor at the University of California, San Diego, told Formulary Watch.

(Editor’s Note: CMS released its list of the first 10 drugs for negotiation on Aug. 29, 2023, and not all of the products researchers assessed in this analysis were on the final list.)

Related: Legal Challenges Likely for Drugs Listed for Medicare Price Negotiation

The Inflation Reduction Act of 2022 introduced several changes to healthcare costs, including a new policy allowing Medicare to negotiate drug prices with pharmaceutical manufacturers for specific medications, starting with 10 medications in 2026. As part of this policy, the negotiated price of a drug must be less than the current price Medicare pays (including current discounts) or less than a pre-established percentage of the maximum price, depending on the time the medication has been on the market.

In this analysis, researchers from the University of California, San Diego, and the West Health Policy Center in Washington, D.C., set out to identify the maximum prices for 10 potential drugs that could be subject to negotiation. They gathered and compared the two values mentioned in the IRA negotiation policy. For each of the 10 potential drugs, the team collected the current price paid by Medicare after discounts. Then, this value was compared with the preset discount for a medication based on how long the drug has been available, as follows:

• 25% discount applied to retail prices of drugs with nine years to 16 years on the market
• 60% discount applied to retail prices of drugs with greater than 16 market years

The analysis suggests that negotiated prices for at least six drugs would have to be lower than discounts already provided in order to save Medicare any money. The Congressional Budget Office had estimated drug price negotiation would save $3.7 billion in 2026.

For six of the 10 investigated drugs in this analysis, the current Medicare discounted prices are higher than the potential discounts based on market years. This means current Medicare prices would represent the maximum negotiable price for those medications.

For example, Enbrel (etanercept), with a list price of $1,762.34 per weekly dose, currently offers Medicare a rebate of around 40%; however, based on market length, this drug qualifies for a 60% discount. Medicare spent $2.8 billion in Part D for Embrel prescription drug costs between June 1, 2022, and May 31, 2023, making it the seventh highest drug on the Medicare’s recently released list of drugs to be negotiated.