Simulated Medicare Drug Price Negotiation Under the Inflation Reduction Act of 2022

Area of Science:

• Health Economics
• Health Policy
• Pharmaceutical Policy

Background:

• The Inflation Reduction Act of 2022 grants Medicare authority to negotiate prescription drug prices.
• The specific drugs selected and negotiation mechanisms remain undefined, necessitating policy simulation.

Purpose of the Study:

• To simulate Medicare drug selection and estimate potential savings under price negotiation provisions.
• To analyze the impact of statutory ceiling prices on Medicare spending from 2018 to 2020.

Main Methods:

• Cross-sectional policy simulation analysis of high-spending Medicare Part B and Part D drugs.
• Evaluation of eligibility criteria and statutory ceiling prices for negotiation from January 2018 to December 2020.

Main Results:

• Forty drugs were identified for potential negotiation, predominantly in endocrine, neurologic, and cardiovascular classes.
• Simulated negotiation at statutory ceiling prices could have saved an estimated $26.5 billion (5% of net spending) between 2018 and 2020.
• A median of 12 years elapsed between FDA approval and potential selection for negotiation.

Conclusions:

• The Inflation Reduction Act's drug negotiation policy, despite limitations like strict selection criteria, can yield significant Medicare savings.
• Statutory ceiling prices offer substantial discounts, particularly by curbing price increases exceeding inflation.
• Potential ineligibility of drugs during the selection-to-negotiation window presents a challenge for policy implementation.