November 9, 2021

Reconciliation Provisions: Medicare Negotiation

How it Could Work

Drug spending policies had been anticipated to be one of the largest off-sets in the reconciliation bill, however the magnitude of the included drug spending policies has been limited since initial discussions. Upon the release of the preliminary outline of the prescription drug pricing provisions that were to be included in the final bill, CIDSA experts were asked to analyze how the outline of Medicare negotiation would impact prices. While the full text has been released in the time since this survey began, experts were asked to limit their analysis to the initial outline.

In the preliminary drug pricing provisions, negotiation was outlined for both Medicare Part B and Medicare Part D. Drug eligible for negotiation must be among the highest gross spending drugs and are single source drugs outside of their initial exclusivity period, 9 years for small molecule drugs and 12 years for biologics. The proposal outlines a timeline where the Secretary of HHS will negotiate up to 10 drugs in 2025 and each proceeding year will select more eligible drugs to negotiate, until reaching 20 drugs by 2028. The negotiated drug must also not exceed certain outlined benchmarks, which are as follows:

  • 75% of its 2021 non-federal average manufacturer price for a small molecule drug fewer than 12 years but more than 9 years passed initial exclusivity
  • 65% of its 2021 non-federal average manufacturer price for a drug 12-16 years passed initial exclusivity
  • 40% of its 2021 non-federal average manufacturer price for a drug more than 16 years passed initial exclusivity

The outline also notes that manufacturers who refuse to participate in negotiation will be subject to an excise tax. There are also additional exemptions included to protect small biotech firms.

What the Experts Think

The CIDSA experts agreed that the preliminary overview of Medicare negotiation as in the reconciliation bill will moderately reduce drug spending. While the experts unanimously agreed that this policy would moderately decrease net prices; they were evenly split if list prices would be affected or moderately decrease. The panel believe that this policy would moderately increase drug access for Medicare patients and large patient groups but would have no impact on any other patient group.

All of the experts opined that this policy would advance drug spending policy but were spilt on if it would be a significant advancement or less. The experts agreed that the ability to be implemented and the precedent-setting value of the policy should be considered strengths. The experts were split on whether the magnitude of the impact on drug spending and the size of the affected patient population were strengths or weaknesses of the policy.

Only 8 experts were able to participate in this survey.

How likely would this policy be to reduce drug spending?
Would Increase Drug Spending
Would Not Affect Drug Spending
Would Minimally Reduce Drug Spending
Would Moderately Reduce Drug Spending
Would Significantly Reduce Drug Spending
Would Substantially Reduce Drug Spending
How likely would this policy be to reduce drug prices?
Would Significantly Increase Drug Prices
Would Moderately Increase Drug Prices
Would Not Affect Drug Prices
Would Moderately Decrease Drug Prices
Would Significantly Decrease Drug Prices
List Prices
Net Prices
How likely would this policy be to increase patient drug access?
Would Significantly Reduce Drug Access
Would Moderately Reduce Drug Access
Would Not Affect Drug Access
Would Moderately Increase Drug Access
Would Significantly Increase Drug Access
Rare Disease
Large Patient Groups
How significant is this policy in the evolution of US drug spending policy?
Does Not Advance Drug Spending Policy
Minimally Advances Drug Spending Policy
Moderately Advances Drug Spending Policy
Significantly Advances Drug Spending Policy
Ground-Breaking Shift in Drug Spending Policy
What are strengths and weaknesses of this policy?
Size of Affected Population
Evidence Base in Support of Policy
Precedent-Setting Value
Magnitude of Drug Spending Impact
How important are the following in your analysis of the policy's impact?
Not Important
A Little Important
Somewhat Important
Very Important
Implications of industry investment are unclear
Behavioral response for launch prices
What number of drugs would fall under this policy today
Unclear if "drugs" are defined as new molecular entites or new drug applications
Ability of manufacturers to shift customers to a different product that is not subject to negotiation
AMP calculation must be reflective of actual net prices paid across non-federal markets
Negotiated prices must be publicly available
With a few exceptions, it is hard to be a top-spend drug in Medicare right after launch

Considerations for Policymakers

The expert panel highlighted several policy concerns for policymakers to consider. Most notably, the experts highlighted that, with a few exceptions, it is hard for a drug to become a top-spend drug in Medicare right after its launch. The possible implications this policy could have on industry investment was also a notable consideration that experts highlighted. Other key considerations are that the negotiated price must be publicly available and that in the policy is it unclear if “drugs” are defined as a new molecular entity or a new drug application. Policymakers should also consider the ability for manufacturers to shift customers to a different product that is not subject to negotiation and that the AMP calculations must be reflective of actual net prices paid across non-federal markets. The final points that experts made for policymakers to be aware of were the uncertainty of the behavioral response of manufacturers to manipulate launch prices and the uncertainty of how many drugs would fall under this policy today.