This study estimated initial price offers for the 15 drugs selected for the Medicare Drug Price Negotiation Program in the Initial Price Applicability Year 2027.
We applied the Centers for Medicare and Medicaid Services guidance to construct a list of therapeutic alternatives for each drug. Price benchmarks included the statutory discount, Big 4/Federal Supply Schedule prices, estimated Medicare Part D net prices, and wholesale acquisition cost. Comparative effectiveness evidence was extracted from peer-reviewed network meta-analyses, clinical guidelines, and Institute for Clinical and Economic Review assessments. Drugs were rated on a 4-tier scale (A-D) based on comparative net health benefit. Initial offers were then estimated by applying market-based discounts depending on the availability and type (branded vs generic) of therapeutic alternatives.
For 6 drugs, statutory or Big 4/Federal Supply Schedule prices anchored the estimated initial offers. Four drugs were informed by clinically comparable branded alternatives, leading to approximately 20% reductions from net price. Two drugs with primarily generic alternatives received larger discounts of approximately 30%. Three drugs with therapeutic alternatives previously negotiated in Initial Price Applicability Year 2026 were assigned either the established maximum fair price or a market-based premium (semaglutide). Across all 15 drugs, estimated discounts ranged from 32% to 78% off list price and 16% to 56% off net price.
Our analysis highlights how Centers for Medicare and Medicaid Services may incorporate statutory discounts, prior maximum fair prices, and comparative effectiveness evidence into initial price offers, although uncertainty remains. An explicit health technology assessment framework could strengthen future negotiation cycles unless international price referencing policy intercedes.
What is it about? The study investigates how Medicare may set initial price offers for drugs selected in the second round of its Drug Price Negotiation Program. The existing gap this study fills involves integrating statutory price benchmarks with clinical effectiveness data to arrive at the initial price offer. By providing a structured approach to evaluate and negotiate drug prices, the paper offers a potential solution to make the Drug Price Negotiation Program more transparent and aligned with therapeutic value.
How was the research conducted? The 15 drugs included in the study were selected based on their inclusion in Medicare’s negotiation program. The research was based on a methodological concept that combines price benchmarks with clinical effectiveness for setting the initial price offer. This approach was applied by constructing a list of therapeutic alternatives for each drug and evaluating them using various price benchmarks and clinical effectiveness evidence. Researchers analyzed data from network meta-analyses, clinical guidelines, and assessments from the Institute for Clinical and Economic Review. The study used an evidence rating scheme to compare prices and therapeutic alternatives. This method was chosen to provide a comprehensive assessment of each drug's value relative to its alternatives.
What were the results? The study's main finding was that integrating statutory discounts and comparative clinical effectiveness can guide initial price offers, leading to significant potential savings. Across the drugs studied, estimated discounts ranged from 32% to 78% off list price. An important additional finding was that drugs with primarily generic or biosimilar alternatives received larger discounts compared to those with branded alternatives.
Why are the results important? These findings provide key insights and transparency into how drug prices are negotiated by Medicare.
What are the strengths and weaknesses of this study? The study's main strength lies in its comprehensive approach, combining price benchmarks with clinical data. A limitation is the reliance on publicly available data, which may not capture all factors considered in negotiations.
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.