Plain Language Summary

What is it about?

The Inflation Reduction Act introduced a new Medicare Drug Price Negotiation Program that allows the government to negotiate prices directly with drug manufacturers for certain high-spending single-source drugs. The study estimated the net Medicare savings in 2026 from negotiating prices for the first 10 selected drugs. Earlier estimates did not account for market changes expected by 2026, such as generic and biosimilar competition, that would independently lower prices and use. They also did not account for changes in manufacturer discounts that affect net prices to Medicare, such as the replacement of the Coverage Gap Discount Program with the Manufacturer Discount Program and the exemption of negotiated drugs from those discounts. To address these limitations, the study compared 3 scenarios. The first assumed no negotiation under the original Coverage Gap Discount Program. The second applied negotiated prices with selected drugs exempt from the new Manufacturer Discount Program. The third assumed no negotiation with the new Manufacturer Discount Program applied. This study provides realistic estimates of Medicare spending reductions by accounting for negotiated and net prices, the manufacturer discounts that shape those net prices, and expected market competition.

How was the research conducted?

The researchers built detailed spending projections under the 3 scenarios. For each of the 10 drugs, they estimated net spending by multiplying the relevant price under each scenario by projected volumes. These volumes drew on historical drug use among Medicare Part D beneficiaries in standalone prescription drug plans from 2022 to 2024, adjusted for generic and biosimilar competitors according to their entry timing. Studying each drug separately let the researchers isolate the effect of negotiation from market competition, which the analysis treated as a background change in both price and use across all 3 scenarios.

What were the results?

Medicare price negotiation is projected to reduce spending on the 10 selected drugs by $2.3 billion in 2026, an 8.8% reduction compared with what spending would have been without negotiation. Savings varied considerably across drugs, with the largest percentage reductions occurring for medications that had low prior rebates before negotiation or that would keep market exclusivity for many years. Drugs facing generic or biosimilar competition saw much smaller savings from negotiation. Competitive pressure would have lowered their prices even without the negotiation.

Why are the results important?

These results help policy makers understand which types of drugs benefit most from government price negotiation and which fall in price through market competition. The findings suggest that future negotiations may be most effective for drugs with low prior rebates and long remaining market exclusivity. Medicare beneficiaries, taxpayers, and the healthcare system benefit through reduced drug spending that can help sustain Medicare and potentially lower premiums and out-of-pocket costs.

What are the strengths and weaknesses of this study?

This study's strength is its comprehensive approach to accounting for real-world market changes, including generic and biosimilar entry, with drug-by-drug analysis revealing how the negotiation effect differs across drugs. A weakness is the uncertainty in predicting future drug use and the exact timing of generic and biosimilar entry, and the analysis was limited to 1 type of Medicare coverage. Follow-up studies could evaluate actual spending once 2026 data becomes available and examine how future negotiation rounds affect Medicare spending.

^{Note: This content was created with assistance from artificial intelligence (AI) and has been reviewed and edited by ISPOR staff. For more information or for inquiries on ISPOR’s AI policy, click here or contact us at info@ispor.org.}