Key Takeaways
- Statutory ceiling drug prices significantly influence initial price offers for certain high-cost drugs.
- Comparative clinical effectiveness and net pricing are paramount in determining initial offers.
- Generic alternatives prompt CMS to apply discounts to current net prices.
- For some drugs, additional negotiation factors are essential to achieve cost savings.
Understanding the intricacies of Medicare’s drug price negotiations has long eluded both experts and the general public. However, the recent study “Integrating Price Benchmarks and Comparative Clinical Effectiveness to Inform the Medicare Drug Price Negotiation Program” published by The Professional Society for Health Economics and Outcomes Research (ISPOR) provides a detailed breakdown of how the Centers for Medicare & Medicaid Services (CMS) may have initially determined price offers for the first 10 high-spend drugs.
This comprehensive analysis, released on the same day CMS announced agreements for lower drug prices, aims to shed light on the process and parameters used to arrive at these initial offers.
The Inflation Reduction Act (IRA) of 2022 marked a significant milestone by granting Medicare the ability to negotiate prices for certain high-expenditure prescription drugs. In 2023, CMS began its negotiations with drug manufacturers for the first 10 drugs selected. The process outlined by the IRA involves several key steps, starting with CMS presenting an initial price offer to each manufacturer, followed by two rounds of negotiations. The maximum fair prices (MFPs) for these drugs, announced on August 15, 2024, will be effective starting in 2026.
ISPOR Study Highlights Price Benchmarks and Clinical Effectiveness in Medicare Drug Price Negotiations
ISPOR’s study, titled “Integrating Price Benchmarks and Comparative Clinical Effectiveness to Inform the Medicare Drug Price Negotiation Program,” offers a transparent method to estimate initial price offers. The authors utilized estimates of net prices and relevant price benchmarks for the 10 drugs and their therapeutic alternatives, incorporated data on comparative clinical effectiveness, and outlined a range of plausible price offers based on CMS guidelines.
The study’s findings suggest that statutory ceiling prices likely influenced the initial offers for drugs like ibrutinib and ustekinumab. For other medications such as apixaban, empagliflozin, etanercept, and insulin aspart, the integration of net pricing and clinical evidence played a significant role.
The presence of generic alternatives for rivaroxaban and sacubitril/valsartan prompted CMS to apply discounts to current net prices. For dapagliflozin and sitagliptin, CMS had to employ additional negotiation factors to achieve savings, as statutory ceilings and net prices of alternatives were either similar or higher.
Promoting Transparency in Medicare Drug Price Negotiations: Key Insights and Future Outlook
Sean D. Sullivan, PhD, the lead author, emphasized the importance of transparency in the negotiation process. “While we couldn’t simulate the entire offer and counter-offer process, our findings provide a systematic way to estimate initial price offers consistent with CMS guidance,” he noted. The study aims to inform the drug policy community about the context-dependent scenarios that shaped CMS’s initial price offers rather than prescribing a specific methodology for CMS to follow.
Looking ahead, the number of drugs subject to Medicare price negotiations will expand. In 2027, CMS will negotiate prices for 15 Medicare Part D drugs, with an additional 15 drugs covered under Medicare Part D or Part B in 2028, and a further 20 drugs in 2029 and subsequent years. This study lays the groundwork for future research aimed at promoting transparency in the CMS process and generating valuable insights for upcoming negotiations.
As the healthcare community eagerly anticipates further details on how CMS arrives at its final maximum fair prices, scheduled for release in late 2025, studies like these play a crucial role in demystifying the negotiation process. Stakeholders can leverage this knowledge to better understand the factors that significantly influence drug pricing and ensure more informed discussions and decisions in the future.
Resource: Professional Society for Health Economics and Outcomes Research, October 01, 2024
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