On Thursday, August 15, 2024, the Centers for Medicare & Medicaid Services (CMS) released the prices for the first 10 prescription drugs selected for negotiation with manufacturers under the Inflation Reduction Act of 2022 Medicare drug price negotiation program. The negotiation program allows CMS to directly negotiate drug prices for certain high expenditure, single source Medicare Part B and Part D drugs on an escalating scale. CMS announced the ten Part D Selected Drugs for the initial price applicability year 2026 in August of 2023. The negotiated prices range from 38% to 79% discounts off the 30-day supply list prices. In a press release, CMS commented that if the new prices had been in effect last year, Medicare would have saved an estimated $6 billion, or approximately 22%, across the 10 selected drugs.
More on Negotiations
In January 2024, CMS and the manufacturers of the 10 Part D Selected Drugs began the price negotiations process, with negotiations concluding earlier this month. CMS took into consideration information provided by manufacturers when determining the new discounted prices, which included research and development costs, prior federal financial support, unit costs of production and distribution, and market/revenue/sales data.
The program establishes price negotiations with CMS to obtain a Maximum Fair Price (MFP). The MFP must be set at no more than 40-75% of the lower of (a) the drug’s non-Federal average manufacturer price for the year 2021, (b) the drug’s non-Federal average manufacturer price for the year prior to selection, or (c) the average sales price or wholesale acquisition cost for the year prior to selection. The program requires the final MFP for drugs selected for the first year of the program be published by September 1, 2024.
Next, CMS has until March 2025 to publish an explanation for the negotiated prices for each selected drug that go into effect on January 1, 2026. By February 2025, CMS will select up to 15 more drugs covered under Part D for negotiations for 2027. Drug manufacturers will have until the end of that month to decide whether to participate in the negotiation program. Following the second round of price negotiations, CMS may negotiate prices for another 15 drugs that will go into effect in 2028, and then another 20 drugs that will go into effect in 2029.
United States Still Pays More
Interestingly, a report recently came out indicating these negotiated prices for prescription drugs are still on average more than double, and in some cases five times, what drugmakers have agreed to in four other high-income countries. A Reuters review of publicly available maximum prices set by other wealthy nations – Australia, Japan, Canada and Sweden – show that they have negotiated far lower prices for the same drugs.
As described in the Reuters article, a study by the non-profit RAND looking at 2022 prescription prices found that health plans in the United States paid more than three times as much for brand-name pharmaceuticals, even after estimated discounts. Studies have shown that faster uptake of new and more expensive drugs helps drive U.S. prices, while other high-income countries directly footing the bill for healthcare place tighter restrictions on prescriptions
The willingness of the U.S. to pay up for drugs also contributes to lower overseas prices, said Richard Frank, director of the Brookings Institution’s Center on Health Policy, quoted in the Reuters article.
“If you’ve got one of your buyers who’s willing to cover your sunk costs, plus some of your ongoing costs,” selling more volume to others, even at lower prices, can still be profitable, he said.