Medicare Negotiation: When Details Matter

We have an historic opportunity in the fight to lower prescription drug prices. Older adults and Americans across the country are sick and tired of paying the highest drug prices in the world – three times what other countries pay. This issue is deeply personal and the economic and emotional toll that rising drug prices has on families cannot be overstated.  As a result, there is no issue before lawmakers that is more popular or garners more support across party lines.

Medicare prescription drug spending has more than doubled since 2006 and is now over $135 billion per year. While the number of enrollees has grown considerably, this unsustainable spending growth has been largely attributed to high and growing prescription drug prices. 

Meanwhile, the Medicare program is prohibited from negotiating drug prices on behalf of its more than 60 million beneficiaries. The law that created the Medicare Part D program also bars the government from setting or negotiating drug prices, instead leaving negotiation to individual Part D plan sponsors. Further, Medicare Part B pays for most prescription drugs based on average sales price plus six percent, a market-based price that does not give the program any power over the prices that are paid.

Fortunately, there is broad and long-standing bipartisan support among Americans for allowing the program to negotiate with drug companies. As part of the ongoing Budget Reconciliation negotiation, Congress is poised to include Medicare negotiation and other policies to lower drug prices and out-of-pocket costs in the package.  

However, the pharmaceutical industry is predictably doing all it can to combat these efforts, raising false alarms about potential impacts to patient access and future innovation. Unfortunately, on behalf of the drug industry, some have begun pushing for a modified approach to negotiation that would only allow Medicare to negotiate for drugs after they have had a lengthy monopoly period. This approach would exclude drugs from negotiation for as long as 21 years, forcing Americans and the Medicare program to pay unjustifiably high prices for decades. 

The vast majority of top Medicare drugs would not be eligible for delayed negotiation

An examination of prescription drugs with the highest Medicare spending (i.e., the drugs with the greatest savings potential) that would be excluded from delayed negotiation demonstrates why the drug industry would push such an approach. Indeed, these are the very drugs most in need of negotiation.

For example, none of the top 10 drugs with the highest total Medicare Part D spending in 2019 would be eligible for negotiation under the modified approach. (Table 1). Total spending on the top 10 Part D drugs was $32.7 billion (17.8 percent of total Medicare Part D spending) in 2019. 

We found similar results under Medicare Part B. Only two of the top 10 drugs with the highest total Medicare Part B spending in 2019 have been on the market for longer than 21 years and would be eligible for negotiation under the modified approach. These two drugs were responsible for $2.6 billion (7.1 percent) of Medicare Part B drug spending in 2019 (Table 2). Meanwhile, the top 10 Part B drugs represented a total of $16.0 billion (43.0 percent) of Medicare Part B spending in 2019.   

Delayed negotiation could reduce savings considerably for Americans and the Medicare program. 

A lengthy monopoly period from negotiation would force Medicare beneficiaries and the program to continue paying high and unrestrained drug prices set by the drug manufacturer at the market will bear. It would also make it extremely unlikely that Medicare beneficiaries would ever benefit from negotiation for any drugs that are approved after they enroll in the program.

Overall, the combination of many fewer high-spend drugs qualifying for negotiation and longer periods without any price relief will mean continued higher prices and greater spending for beneficiaries and taxpayers alike.  

Negotiation must lead to meaningful improvements

Medicare prescription drug spending is clearly on an unsustainable trajectory. The public overwhelmingly supports finally allowing the program to negotiate with drug companies but some policymakers—facing intense pressure from drug companies—have begun to step back from this commonsense solution. While we can debate which drugs should be subject to Medicare negotiation, policymakers should be clear that any approach that does not immediately target the drugs that create the biggest financial burdens for the program and its beneficiaries is hardly a solution at all.  


Table 1.

* Pediatric exclusivity only.
** Authorized generic only.

Original approval dates are from FDA Orange Book (https://www.accessdata.fda.gov/scripts/cder/ob/index.cfm) and FDA Purple Book (https://purplebooksearch.fda.gov/). Generic/biosimilar availability and launch dates are from FDA Orange Book, FDA Purple Book, and drug company press releases. Spending data are from the Medicare Part D Drug Spending Dashboard (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/MedicarePartD). 

Table 2

Original approval dates are from FDA Purple Book (https://purplebooksearch.fda.gov/). Generic/biosimilar availability and launch dates are from FDA Purple Book and drug company press releases. Spending data are from the Medicare Part B Drug Spending Dashboard (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/MedicarePartB).