Questions Remain about Whether Negotiated Drug Prices will Save Money

The first prices under the new policy that allows Medicare, through the Inflation Reduction Act, to negotiate drugs have been released. And there are more questions than answers about whether the negotiated pricing will result in meaningful savings for Medicare and its beneficiaries.

Industry leaders that Managed Healthcare Executive have spoken to say it’s impossible to know whether Medicare’s Maximum Fair Prices (MFP) are better than the current rebates and discounts that plans have able to be negotiate themselves. Industry experts we’ve spoken to say Medicare will likely experience savings from net prices, but how much is still a question mark.

“Medicare may have negotiated a better deal for health insurers – but we don’t really know yet because the CMS materials compare their prices to ‘list’ prices versus actual market prices,” Peter Rubin, executive director of No Patient Left Behind, a nonprofit dedicated to creating and maintaining patient access to affordable prescription drugs. “Unfortunately, there’s still no guarantee that Medicare beneficiaries are going to see meaningfully lower prices at the pharmacy counter.”

Milena Sullivan

There's utility in understanding what the Medicare price will be going forward relative to list price, “but it doesn’t give the public enough insight into what specifically the success of this negotiation was on top of the discounts that payers and market competition have already accomplished,” Milena Sullivan, a managing director with a background in oncology policy and market access at Avalere, said in an interview.

“Many of the products on this list are already some of the most discounted rebated competitive products in the Part D market,” she said. “So reporting the results, as they did, obfuscates a little bit exactly how much the negotiation team was able to generate as additional savings.”

The Centers for Medicare and Medicaid Services is expected to publish the rationale with the evidence it used to come up with its pricing strategy in March 2025.

“CMS was supposed to review clinical data and health economic data as well as input from patients, providers,” Sullivan said. “But there's also a concern that maybe they just had certain savings targets in mind and just drove towards those with less regard for the clinical evidence and the HEOR data.

Understanding the rationale for the pricing will also provide insight into the implications of the drug negotiation program in future years. “The more we get closer to an understanding of what drove the factors and what evidence and data were considered in order to arrive at these prices, the more insight we’ll have for other drugs and for therapeutic areas going forward.”

By Feb. 1, 2025, CMS will release up to 15 more drugs covered under Part D for the next cycle for negotiation, with prices effective in 2027. CMS will select up to 15 more drugs covered by Part B or Part D for 2028, and up to 20 more Part B or Part D drugs for each year after that.

Does Medicare Save?

The 10 drugs chosen for this first round of negotiations saw list prices that increased as much as 55% from 2018 to 2023, according to Office of the Assistant Secretary for Planning and Evaluation (ASPE), which is part of the U.S. Department of Health and Human Services.

Related: HHS Releases Prices for Medicare Negotiated Drugs

The discounts negotiated by CMS are based on wholesale acquisition costs and not the net prices after rebates. Net prices after rebates and discounts are considered proprietary. The wholesale acquisition prices were used as a baseline for CMS negotiation because they represent the price set by the manufacturer and that influences prices throughout the reimbursement system, according to a brief issued today by the ASPE.

CMS indicates that discounts range from a 38% to 79% from list prices, and new prices will go into effect beginning Jan. 1, 2026. CMS has said the negotiated prices represent a 22% lower net spending in aggregate compared with 2023.

The negotiated cost represents a substantially higher discount than the required minimum non-FAMP discount, or the average price paid to manufacturers by wholesalers for nonfederal purchasers, Julie Kendle, senior director at IPD Analytics.

“In many cases, the MFP discount is substantially higher than the current estimated Medicare rebate, so the Government program will result in additional net savings,” she said. “However, whether or not the savings is substantial enough to offset the cost of implementing and maintaining the program remains to be seen.”

Lindsay Bealor Greenleaf

The system, however, is still dependent on drug rebates. To really judge the negotiated prices, we would need to know each drug’s net price, Lindsay Bealor Greenleaf, federal and state policy solution leader at the consulting company ADVI Health, said in an interview.

“The prices align with our expectations on list price,” Greenleaf said. “Does this align with our estimates on net price? I don’t have a solid answer. We’re trying to judge these prices as best we can with public estimates of net prices.”

Medicare’s Maximum Fair Prices set a new starting point for manufacturers and plans, Greenleaf said. “For heavily rebated drugs, there will be less room for rebates,” she said. “How each plan and each PBM views that remains to be seen. Historically, we know PBMs prefer drugs that provide the highest level of rebates, which might mean they might prefer competitor products.”

Do Beneficiaries Save?

CMS is reporting that beneficiaries will save in aggregated about $1.5 billion from the negotiated drugs.

But those we spoke with said it’s not possible to consider the effects of the drug pricing program on beneficiaries in isolation.

“What people pay at the pharmacy counter is complicated and has to do with the Medicare transaction facilitator and how that is structured, and there are still lingering questions on all of that that will get worked out before 2026,” Greenleaf said.

Next year will see two important elements of the Inflation Reduction Act being implemented: a $2,000 cap on out-of-pocket costs under Part D and the Prescription Payment Plan, sometimes called the “smoothing” program, where beneficiaries with Medicare Part D drug coverage will have the option to pay out-of-pocket costs in monthly payments spread out over the year.

The beneficiaries most likely to see savings will be those without the low-income subsidy, Sullivan said.

“The low income subsidy beneficiaries already have a very low, capped copay across all of their drugs,” Sullivan said. “Any out-of-pocket difference would be felt by non-LIS beneficiaries who received some of the costlier drugs on this list. There are estimates that this is only between 1% and 2% of all Medicare seniors.”

Amanda Forys

Medicare beneficiary savings will be dependent on if the plans even continue to cover the 10 negotiated drugs at the same levels that they currently are, said Amanda Forys, partner at Magnolia Market Access. “The law says they have to be on formulary, but does not say they have to be preferred. While CMS did release a ‘warning’ to plans last year that they expect the negotiated drugs to be front and center on formularies, that is not part of the law.”

Forys indicated that plans are likely to use Medicare’s pricing as a tool to try to push more rebates from the non-negotiated drugs from competitors. “If competitors give those rebates, they will likely be preferred on the formulary and the negotiated drugs will require a step. Those drugs will still have a higher list price and not a MFP, so will it really count as a ‘savings’,” she asks.

“In my personal opinion, this is trying to fit a rebate at the point of sale model into a world with backend rebates still existing,” Forys said. “You can’t have both and have a transparent pricing system. I think more action needs to be taken on the system as a whole, and the PBM/Part D plan/manufacturer pricing and rebating system that fundamentally changes the model.”

The Inflation Reduction Act requires all Medicare Part D plans to cover each of the 10 selected drugs. It’s been predicted that CMS will use the annual formulary review process to ensure that plans cover all dosages and forms of selected drugs.

Rubin said CMS lost an opportunity when it didn’t require that plans place the negotiated drugs on the lowest cost formulary coverage tiers. “Requiring plans to charge $0 copays for government price set drugs is the most efficient way for CMS to help beneficiaries at the pharmacy counter,” he said. “CMS allowing plans to keep charging beneficiaries up to 50% coinsurance while also creating a new demo to pay increased subsidies to health plans makes little practical sense for consumers.”

Related: Payers to Increase Utilization Management if the IRA Leads to Higher Costs

Payers have indicated they might implement additional utilization management efforts for the negotiated products as well as other drugs if costs increase, according to recent survey by Magnolia Market Access, which has conducted a series of survey with plans and PBMs about the impact of the Inflation Reduction Act.

Other possible changes include favoring more generics and biosimilars, increasing use of prior authorizations for Part B products, and scaling back enhanced benefits. But also mentioned by payers was increasing formulary exclusions, delaying prior authorizations, delaying prescription fills and removing electronic prior authorizations.

Sullivan said the impact for savings for beneficiaries may not felt until the next round or two of negotiations, especially if CMS choses drugs that are not heavily rebated. “There are six protected classes, including oncology, and payers have had limited ability to negotiate significant rebates in those protected classes. Formulary coverage for these classes is required and the ability to do UM (utilization management) is a little constricted.”