High-Spending Drugs and Their Role in Medicare Part D: Impact of the Drug Price Negotiation Program

The Inflation Reduction Act and the Drug Price Negotiation Program

Under the Inflation Reduction Act, the federal government is now mandated to negotiate the price of high-spending drugs covered by Medicare Part D, the outpatient prescription drug benefit program, and Medicare Part B. This gave birth to the new Medicare Drug Price Negotiation Program, a revolutionary step towards managing the rising prescription drug costs.

In the first year of implementation in 2026, the number of drugs subject to price negotiation will be limited to 10 Part D drugs, expanding to 15 more in 2027, then a combined total of 30 Part D and Part B drugs by 2028. This gradual expansion will continue until 2029 and later years. Therefore, the number of medications with negotiated prices will accumulate over time, impacting total gross spending in the healthcare sector.

The 10 Part D drugs chosen for price negotiation in 2026 will be announced by September 1, 2023. The selection will be made from the top 50 negotiation-eligible Part D drugs with the highest total Medicare Part D expenditures. Criteria for selection include being single-source brand-name drugs or biological products without therapeutically-equivalent generic or biosimilar alternatives and being at least seven years (for small-molecule drugs) or 11 years (for biologics) past their FDA approval or licensure date.

How a Small Number of Drugs Dictate Medicare Part D Spending

Investigating the total Medicare Part D spending, it becomes evident that a small number of high-spending drugs play a significant role. According to data from the Centers for Medicare & Medicaid Services, the ten top-selling drugs accounted for nearly one-fourth of gross Part D spending in 2021. It is staggering to learn that out of over 3,500 prescription drug products covered by Medicare Part D, these ten drugs accounted for 22% of total gross Medicare drug spending in 2021.

To put things into perspective, total gross spending on the top 10 Medicare Part D drugs in 2021 ranged from $2.6 billion for Ozempic, a diabetes drug, to $12.6 billion for Eliquis, a blood thinner. The collective spending on these ten drugs alone stood at a staggering $48 billion, showcasing their substantial influence.

The Rising Curve of Medicare Part D Drug Spending

A retrospective view reveals an alarming increase in gross spending for Medicare Part D drugs. Between 2018 and 2021, the spending on the top 10 selling drugs more than doubled, rising from $22 billion to nearly $48 billion. This sharp increase indicates high-spending drugs’ critical role in shaping the total gross spending landscape.

Eliquis, the top-selling drug in 2021, witnessed a 2.5 times increase in spending, going from $5 billion in 2018 to $12.6 billion in 2021. Similarly, spending on the diabetes drug Trulicity tripled, while the expenditure on Jardiance, another diabetes drug, increased more than five times.

The Impact of the Drug Price Negotiation Program

The Medicare Drug Price Negotiation Program established under the Inflation Reduction Act is poised to create a significant shift in this scenario. The Congressional Budget Office (CBO) estimates nearly $100 billion in Medicare savings between 2026 and 2031 from this program. While the analysis does not pinpoint the drugs selected for negotiation, it suggests that the program’s targeted negotiation could substantially affect a disproportionate share of Medicare drug spending.

The selection process will rely on multiple factors, including the drug’s approval date and generic or biosimilar availability. It is worth noting that two of the ten top-selling Part D drugs in 2021, Trulicity and Ozempic, would not be eligible based on their approval dates. Meanwhile, three other drugs, Revlimid, Humira, and Lantus, would be ineligible due to their generic or biosimilar availability in 2023.

FAQs

What is the Medicare Drug Price Negotiation Program?

The Medicare Drug Price Negotiation Program is a federal initiative that allows the government to negotiate the price of certain high-spending drugs covered by Medicare Part D and Part B.

How will the program affect Medicare Part D spending?

The program aims to control the rising cost of prescription drugs, which constitutes a significant part of Medicare Part D spending. The Congressional Budget Office (CBO) estimates that the program could save nearly $100 billion in Medicare spending between 2026 and 2031.

How are the drugs selected for price negotiation?

The drugs are selected based on several factors, including whether they are single-source brand-name drugs or biological products without therapeutically-equivalent generic or biosimilar alternatives and whether they are at least seven years (for small-molecule drugs) or 11 years (for biologics) past their FDA approval or licensure date.

What is the role of the Centers for Medicare & Medicaid Services in this process?

The Centers for Medicare & Medicaid Services (CMS) are crucial. The data from CMS forms the basis for understanding and analyzing the total Medicare Part D spending, which informs the decision-making process for the Drug Price Negotiation Program.

What is the Inflation Reduction Act?

The Inflation Reduction Act is a legislative measure that requires the federal government to negotiate the price of certain high-spending drugs covered by Medicare Part D and Part B. The Drug Price Negotiation Program is an outcome of this act.

How does the cost of high-spending drugs impact Medicare Part D?

High-spending drugs have a significant impact on Medicare Part D’s total spending. Data from 2021 revealed that the top 10 selling drugs accounted for 22% of total gross expenditures. Hence, the cost of these drugs plays a critical role in the overall spending structure.

Source: Kaiser Family Foundation