US Medicare will begin negotiating prices for top-selling drugs in 2023. This study describes and estimates potential savings from a therapeutic reference pricing approach, linking comparative effectiveness with the costs of existing therapeutic alternatives, that Medicare could use to adjust the starting point for price negotiations.
First, we identified target drugs likely to be selected for Medicare negotiation. Second, we identified comparative effectiveness ratings for target drugs based on French Haute Autorité de Santé reports. For target drugs with minor or no added benefit, we identified therapeutic alternatives based on the French reports and US clinical guidelines. For each target drug with minor or no added benefit, we computed the difference between spending based on the drug’s estimated statutory ceiling price and spending based on the weighted average cost of therapeutic alternatives or the lowest cost therapeutic alternative. Finally, we calculated potential annual savings from using a starting point in negotiations based on costs of therapeutic alternatives.
Potential drug-level savings to Medicare from using a starting point in negotiations based on average spending across therapeutic alternatives, compared with using the statutory ceiling price alone, ranged from $186 541 340 to $2 173 441 197. Potential savings from using a starting point based on the lowest cost alternative ranged from $199 872 163 to $3 605 904 765.
Although we do not expect Medicare to rely on French comparative effectiveness assessments, this study demonstrates the potential for additional savings when using comparative effectiveness and costs of therapeutic alternatives to inform the starting price for negotiations.