Allowing Medicare to negotiate drug prices proposes to lower drug spending by leveraging the vast purchasing power of the Medicare program to compel lower prices from drug manufacturers. While the term “Medicare negotiation” includes a variety of policy options, for this assessment, experts were told to limit their analysis to the Medicare negotiation policy envisioned in the 2019 bill H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act.
Under this model, for any of a manufacturer’s drugs to be covered by Medicare, the manufacturer must agree to negotiate with Medicare. This negotiation process requires Medicare to identify at least 25 drugs for annual negotiations, basing the selection on spending criteria and the magnitude of savings that could be achieved. If a drug is selected for negotiation, the manufacturer must provide information on the price of the drug in other developed countries as well as research and development and production costs, among other information. Medicare and the manufacturer will then negotiate a price for the drug, though the negotiated price must be lower than 120% of the drug’s average price in certain other developed countries. Once a price is agreed upon, that price will become available to Medicare as well as Medicaid and the commercial market; the negotiated price may not increase faster than the rate of inflation. If the manufacturer sells the drug at a higher price, it is subject to onerous excise taxes. Medicare negotiation under this bill is expected to reduce federal spending by $456 billion over 10 years.
The expert panel generally agreed that Medicare negotiation would reduce drug spending – over half estimated that the reduction would be substantial. They generally agreed that negotiation would significantly decrease both list and net prices, though two experts thought list prices may moderately increase; because not all drugs would be subject to negotiation, this divergence in views may reflect differing effects for different drugs. All agreed, however, that nearly all patients would see a moderate increase in drug access though Medicaid patient access would not be affected.
There was general consensus that Medicare negotiation would represent a ground-breaking shift in drug spending policy. The precedent-setting value of the policy, the size of the affected patient population, and the magnitude of drug spending impact were all highlighted as strengths of the policy, while the evidence base in support of the policy and its ability to implemented were generally viewed as neither a strength nor weakness.
Experts highlighted numerous considerations for policymakers. The most important considerations include the institutional capacity of the Department of Health and Human Services to administer Medicare negotiation and the possibility of manufacturers differentiating international and domestic formulations to avoid comparisons when setting the average international price. Other key considerations include uncertainty regarding whether new drugs with high launch prices will be effectively targeted, the ability to obtain international comparator prices, uncertainty regarding the long-term impact on new drug development and pricing, uncertainty on how many drugs will be subject to negotiation, and uncertainty on how pharmacy benefit managers would respond to lower list prices. Additional considerations include uncertainty as to how pharmacy reimbursement will be affected and the possibility of manufacturer refusal to participate in negotiation and the subsequent lack of drug access.