Allowing Medicare to Negotiate Prices for Most Common Drugs Could Save $2.8 Billion

Rising drug costs continues to be a point of focus for Americans and lawmakers. In 2016, Medicare accounted for 29% of all retail prescription spending, but its share is expected to increase to 33% by 2026.

If Medicare was allowed to negotiate drug prices, the Medicare Part D program could save at least $2.8 billion in just 1 year, according to a report released by Senator Claire McCaskill, D-Missouri, the top-ranking Democrat on the Senate Homeland Security and Governmental Affairs Committee.

“When we don’t let Medicare negotiate for better prices, it puts the profits of big pharma ahead of the interests of Missouri seniors,” McCaskill said in a statement. “Getting bulk discounts is something every business does, and the fact that the federal government is prohibited from doing it for Medicare is unconscionable.”

The report compared Medicare Part D spending on the 20 most commonly prescribed brand-name drugs—including anti-diabetic Januvia, nerve pain medicine Lyrica, bronchodilator Symbicort, and blood thinner Xarelto—with prices that had been negotiated by the Department of Veterans Affairs (VA).

The VA’s negotiated drug prices rose at significantly lower rates than the drugs in Medicare Part D, according to the report. The average price for the top 20 most common drugs in Part D increased 59.1% from $151.58 in 2012 to $241.09 in 2017. The negotiated prices increased 44% during that time from $104.10 to $149.88, after adjusting for inflation.

There was only 1 drug, the NovoLog FlexPen, that had a negotiated price that exceeded the list price, but 7 of the top 20 drugs had negotiated prices that were less than half of the list prices, according to the report.

In order to determine the savings Medicare could generate if it also had the ability to negotiate, researchers compared drug prices listed on the Federal Supply Schedule with Medicare Part D expenditures using the 2015 Medicare Expenditure Panel Survey (MEPS). The MEPS entries were matched to negotiated federal prices. According to the report, even accounting for a 17.5% average rebate and increasing negotiated federal prices by $13.46 to account for dispensing costs, Medicare and its beneficiaries could save $2.8 billion if it was able to negotiate for just the top 20 most commonly prescribed brand-name drugs.

“The significant variation between Medicare Part D drug prices and negotiated federal drug prices—and the potential costs savings from extending negotiated prices to other federal drug benefit programs—merits further investigation,” the report concluded.