A study published in the November 2023 issue of Value in Health suggests that the United States Medicare program could achieve substantial annual savings ranging from $5 to $10 billion across 10 drugs if it incorporated a therapeutic reference pricing approach in its price negotiations with manufacturers. Currently, price negotiations are largely based on the statutory ceiling price alone. Still, this new research proposes using the effectiveness of drugs compared to therapeutic alternatives and the costs of those alternatives as part of the negotiation process.
Starting in 2023, Medicare will engage in negotiations for the prices of top-selling drugs, considering aspects such as the effectiveness of these drugs compared to available therapeutic alternatives and their relative costs. However, the United States lacks a public health technology assessment entity to determine comparative effectiveness. Consequently, the Centers for Medicare & Medicaid Services (CMS) must conduct their assessments for the drugs involved in the negotiations.
The study leveraged elements of France’s system for evaluating comparative effectiveness to create a modeling approach for the Medicare negotiation process. It identified 15 Medicare Part D drugs likely to be part of the initial round of price negotiations based on the criteria outlined in the Inflation Reduction Act (IRA). The study then used data from France’s National Authority for Health (Haute Autorité de santé or HAS) to determine evidence of comparative effectiveness for these target drugs. The research identified a set of therapeutic alternatives for the 10 drugs with minor or no added benefit, based on French reports and U.S. clinical guidelines.
The findings showed that for nine of the 10 target drugs, beneficiary-weighted mean net annual spending per beneficiary across all therapeutic alternatives was lower than the statutory ceiling price. For all 10 target drugs, the lowest-cost alternative’s net annual spending was also lower than the statutory ceiling price.
When considering individual drug-level savings, using a starting point in negotiations based on the average spending across therapeutic alternatives could result in savings ranging from $186,541,340 to $2,173,441,197. If the starting point was based on the lowest-cost alternative, savings could range from $199,872,163 to $3,605,904,765.
On a collective scale, incorporating a starting point in negotiations based on average spending across therapeutic alternatives could result in savings of $4,963,835,546, equivalent to 38% of the total spending on the 10 target drugs. Using a starting point based on the lowest-cost alternative could lead to savings of $9,754,892,250, constituting 75% of the total spending on the 10 target drugs.
The study highlights the significant potential for savings through the utilization of a therapeutic reference pricing approach that combines comparative effectiveness and therapeutic alternative costs in the price negotiation process. The research does not recommend or anticipate CMS relying solely on assessments of comparative effectiveness from other countries but rather suggests that CMS should review methodologies used by health technology assessment (HTA) bodies in other countries to inform its process for assessing comparative effectiveness.
This approach aligns with the Inflation Reduction Act (IRA), which directs CMS to initiate drug price negotiations within Medicare, focusing on the 10 best-selling drugs starting in 2023, and expanding to include more drugs in the following years. The IRA lays out a framework for determining drug ceiling prices and considers the clinical benefits and therapeutic alternatives to establish initial negotiation prices, while CMS is tasked with adjusting these prices based on the drug’s clinical benefit compared to alternatives.
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