For the first time, we are seeing how the Centers for Medicare & Medicaid Services is calculating and reporting cost savings from negotiations under the Inflation Reduction Act.
The Biden Administration announced yesterday (August 15) the results of the first round of IRA Medicare price negotiations, which it frames as a significant step in addressing the high costs of prescription drugs. This initial round focused on 10 drugs that represent some of the highest total spending under Medicare Part D. These 10 drugs accounted for $50.5 billion, or 20%, of Medicare prescription drug expenditures from June 1, 2022, to May 31, 2023.
Key Takeaways
The administration reported annual Medicare expenditure savings are estimated at $6 billion, with an additional $1.5 billion in reduced out-of-pocket expenses for Medicare recipients. The negotiated list price reductions range from 38% to 79% (nine of the 10 drugs were discounted by at least 50% ). The prices will go into effect starting 2026.
As the White House and mass media outlets, like CNN, are quick to tout this announcement, two very big questions loom:
- Did CMS really negotiate discounts that are that high?
- Will patients see their drug costs go down at a similar magnitude starting in 2026?
The answers are – no, and it’s unlikely.
The “up to 79% discount” makes a good headline, but it’s hyperbolic. That’s because the discounts of 38%-79% are off list prices – prices that Medicare Part D plans don’t pay (given the long-standing practice of negotiating with manufacturers for rebates). And, ultimately it is up to insurers/Part D plans to decide whether to pass on the discounts (or even a portion of them) to seniors. Unlike the $2,000 annual drug spending cap starting in 2025 (for those enrolled in Part D/MA-PD plans) that will directly benefit seniors, there is no requirement for insurers to share negotiated drug discounts with seniors.
Ultimately, the Medicare Drug Pricing Negotiation Program’s success should not be judged by headlines, but rather by multiple factors in the short and long-term: beneficiary access, prices and spending, promotion of value, and effects on innovation (Health Affairs).
What’s Next?
The administration will continue to use drug pricing as a political and policy talking point, using yesterday’s announcement to dismiss concerns raised by the life science industry and will likely press on with calls to expand Medicare negotiations even more rapidly (as it stands, the next 15 drugs to be included in negotiations will be published before February 2025).
Given all this momentum, life science companies should:
- Encourage stakeholders to question. HCPs, patients and advocates should parse the political narrative (e.g., large discounts from list price) from reality. Implore them to put pressure on health plans to ensure savings from government negotiated discounts reach patients.
- Balance the story. Invest in external communications that bring the practices of insurance companies/PBMs to the forefront. They determine the prices patients pay for medicines.
- Carefully consider pricing narrative. Given the political, investor and other broad audiences focused on pricing, work closely with pricing professionals (internally and externally) to consider and weigh these perspectives when crafting pricing messages.
- Ease concerns. For companies with negotiated drugs (or those who may have drugs selected in next years), remind employees and stakeholders – just as they do when drugs are newly approved – that list price is not the price that is paid and that the cost of medicines after rebates is the real drug price to Part D plans.
The Syneos Corporate Affairs Team has been working with clients through sensitive pricing issues through this political cycle – including ways to use data to reinforce value well after approval and how financial communications can mesh with overall strategic communications.
