Substantial Decrease in Medicare Drug Prices Possible Under Inflation Reduction Act

Prices for some Medicare drugs could decrease substantially under the Inflation Reduction Act, according to a new study by Mathematica.

The study simulated the Medicare Drug Price Negotiation Program (DPNP) on the 10 drugs with the highest expenditures under Medicare Part D that would have qualified under the Inflation Reduction Act in 2021, the most recent year for which complete Part D data were available. The study found an average reduction of at least 63 percent in drug prices at the point of sale. All 10 drugs would have experienced a point-of-sale price reduction of 50 percent or more.

In addition to sharp decreases in the prices of those drugs, out-of-pocket spending would have fallen 23 percent, on average, under Medicare drug price negotiation, with variation across demographic groups. Mathematica’s experts identified meaningfully different reductions in out-of-pocket spending by race and ethnicity and other beneficiary characteristics, with American Indian/Alaska Native enrollees realizing the greatest savings from DPNP policies and non-Hispanic Black enrollees and enrollees with disabilities the least.

Key findings from the analysis include the following:

• The 10 selected drugs accounted for 13 percent of Part D spending. This finding aligns roughly with a previous analysis showing that the top 10 drugs (before adjusting for rebates and without regard to their eligibility for negotiation) accounted for 22 percent of Part D spending, and the top 50 drugs constituted nearly half of all spending.
• Prices of selected drugs in 2021 would have declined at least 63 percent, on average, at the point of sale. In line with prior studies estimating declines of 66 percent, we estimated substantial reductions in price after applying ceiling prices to the selected drugs. These estimates are conservative in the sense that actual negotiated prices for these drugs cannot be higher than the ceiling price but might be lower, potentially resulting in even larger price drops.
• Out-of-pocket spending would have fallen 23 percent because of the DPNP, with variation across groups. If there had been no other changes to the Part D benefit, median Part D out-of-pocket spending on all Part D drugs would have declined by 23 percent under the DPNP in 2021, from $1,250 per enrollee to $967. Median savings, however, would vary across different demographic groups.
• Capping out-of-pocket spending would have resulted in additional savings, on average. If their out-of-pocket spending was capped at $2,000, enrollees would have this spending reduced by 33 percent, on average. The highest reduction would have been for American Indians/Alaska Natives (37 percent), and the lowest reduction would have been for enrollees with disabilities (30 percent).
• The top 10 list of drugs will change from year to year. The list of selected drugs announced by the U.S. Department of Health and Human Services on September 1, 2023, includes only three that made our 2021 list—Januvia, Novolog, and Enbrel—suggesting the set of drugs with the highest expenditures can change markedly from year to year. Three other drugs on the 2023 list—Eliquis, Imbruvica, and Xarelto—received approval from the Food and Drug Administration too recently to qualify for the 2021 list, and the remaining four drugs on the 2023 list—Farxiga, Entresto, Stelara, and Jardiance—did not meet the spending criteria for 2021.

“We estimate that drug price negotiation will lead to sizable reductions in Part D enrollees’ out-of-pocket spending for all groups considered and that some groups will benefit significantly more than others,” said Jia Pu, senior researcher and lead author of the study.

“Given the established reality of health care disparities more broadly, it will be important as we move forward to understand why these differences exist,” said Jeff Ballou, senior fellow. “Continued attention to understanding and addressing the causes and implications of these differences is warranted as CMS moves through its inaugural Medicare drug price negotiation process.”

In recent years, the price of brand-name prescription drugs under Part D has increased dramatically, rising more than 10 percent per year from 2009 to 2018, and the average net cost of brand-name drugs is higher for Medicare D plans than for other federal payers.

As part of the 2022 Inflation Reduction Act, Congress authorized the DPNP, giving the Centers for Medicare & Medicare Services authority to negotiate the prices of the highest-expenditure drugs and specifying a formula for the maximum ceiling price that the negotiated price cannot exceed.