IRA's price negotiation provision would've saved Medicare $26.5B from 2018 to 2020, JAMA study says
New research shows Medicare could have saved 5% between 2018-2020, if the Inflation Reduction Act had been passed in 2018 and Medicare started using the law’s price negotiation authority.
The study published Friday in JAMA Health Forum — from Harvard’s Aaron Kesselheim and Ben Rome, along with Sarosh Nagar, Alexander Egilman, William Feldman and Junyi Wang — looked to evaluate how CMS’ new negotiation authority would be implemented.
The simulation identified 40 drugs that would have been picked for negotiation from 2016-2018, two years before negotiated prices would take effect (2018-2020). It included blockbusters such as Revlimid, Humira and Janumet.
According to the Harvard study, the law requires CMS to negotiate a maximum fair price for a drug. The negotiated price would then stay in place until the calendar beginning of the first year, at least nine months after the first generic or biosimilar to a specific drug goes to market.
However, that fair price must fall below a “ceiling price.” The ceiling price can be one of two things, according to the report: the lesser of
- the average net price for a drug after certain negotiated discounts and/or rebates, or
- a percentage of the drug’s nonfederal average manufacturer price (non-FAMP).
That percentage of the average manufacturer price changes according to how long the drugs have been approved. For drugs approved less than 12 years ago, the ceiling price is 75% of the non-FAMP price. In the 12-16 year gap, it’s 65%, and then it drops down to 40% for anything longer than that.
However, since the middle 65% category will not be included until 2030, the researchers modeled that the ceiling price would be 75% of non-FAMP for any drug that was approved less than 16 years ago — for the first five years.
Taking all this into account, if the Act was passed in 2018, spending at ceiling prices would have been reduced by an estimated $26.5 billion.
While there were a few limitations, such as savings being likely to grow over time and not accounting for savings outside of Medicare, the researchers added that the drug with the largest estimated savings from ceiling prices was lenalidomide/Revlimid, which cost Medicare $14.1 billion between 2018-2020 and would have cost only $5.2 billion at the ceiling price, cutting the price by 63%. Other drugs with estimated high savings included adalimumab/Humira, at 74%.
The group’s findings reflect another study on the IRA that came out earlier in 2023 — also from Kesselheim, Rome and Egilman. That study said the Inflation Reduction Act would have saved Medicare Part B $3.7 billion in the same three years, about 3% of its total spending during that time.
That study noted that it would have been possible under the law’s new guidance on tying price increases to the rise of inflation, and 75% of 93 top-selling drugs would have had to owe Medicare rebates due to price increases above inflation.