Medicare could save an additional $10 billion annually across 10 drugs by using a therapeutic reference pricing approach in upcoming price negotiations
Value in Health, the official journal of ISPOR—The Professional Society for Health Economics and Outcomes Research, announced the publication of a study showing that United States Medicare could save up to an additional $5-$10 billion dollars annually across 10 drugs if, in upcoming price negotiations with manufacturers, it negotiated prices using a therapeutic reference pricing approach rather than using the statutory ceiling price alone.
The report, “Estimated Savings From Using Added Therapeutic Benefit and Therapeutic Reference Pricing in United States Medicare Drug Price Negotiations,” was published in the November 2023 issue of Value in Health.
Based on the criteria published in the Inflation Reduction Act (IRA), researchers identified 15 Medicare Part D drugs likely to be selected for the first round of IRA-directed price negotiations. They identified evidence of comparative effectiveness for these target drugs based on reports from France’s National Authority for Health (Haute Autorité de santé or HAS). For the 10 drugs with minor or no added benefit as determined by HAS (7 of which were included in the list announced by the government on August 29, 2023), they identified a set of therapeutic alternatives based on the French reports and US clinical guidelines. For each of these 10 target drugs, the authors calculated potential annual savings from using a starting point in negotiations based on costs of therapeutic alternatives rather than using the statutory ceiling price alone. The beneficiary-weighted mean net annual spending per beneficiary across all therapeutic alternatives was lower than the statutory ceiling price for 9 of the 10 target drugs, and the lowest cost alternative net annual spending was lower than the statutory ceiling price for all 10 target drugs.
Potential individual-drug-level savings from using a starting point in negotiations based on average spending across therapeutic alternatives ranged from $186,541,340 to $2,173,441,197. Potential individual-drug-level savings from using a starting point based on the lowest cost alternative ranged from $199,872,163 to $3,605,904,765.
Potential collective savings (for all 10 target drugs) from using a starting point in negotiations based on average spending across therapeutic alternatives was $4,963,835,546, 38% of total spending on the 10 target drugs. Potential savings from using a starting point based on the lowest cost alternative was $9,754,892,250, 75% of total spending on the 10 target drugs.
