So, now that the dust has settled a bit on the release of the first Medicare negotiated prices under the IRA, I offer a few observations for those that are interested in this stuff. Note that, notwithstanding my industry schill status, these are offered simply as that, and not as judgments.
1. As reflected in some other threads, the administration's pressers touted that they had negotiated $6B in savings on the ten drugs, reflecting discounts in the 70%+ range. Candidly, that's very misleading, as the $6B/79% figures are a comparison to list prices, which no one pays, and which do not nearly reflect the gross (list) to net margins of manufacturers reflecting discounts and rebates already in the system. But hey, it's a political presser, and certainly not the first or last in an election season to be very misleading.
2. So then, were there incremental savings negotiated? Yes. Most of the good data analysis (Fein, Hernandez) I've seen here suggests that (with one exception discussed below) the pre-existing gross to nets on these ten products were significantly in excess of 50%, that the final discounts aren't that far from the statutory minimum discounts, and that the net incremental discounts that have been negotiated through this process have probably been in the 6% range. A discount is a discount, so in that sense the process "worked," but the incremental "savings" is really pretty modest.
3. The "exception" noted above is Entresto (heart failure drug). The negotiated discounts there are more significant. Why? well, Novartis was expecting the product to lose patent protection in '26 when this kicked in, and when that happens, (i) your market price falls into the basement, and (ii) the next year, you're excused from negotiated pricing. So the significant Entresto discounts may not actually be meaningful as a practical matter, because even at the low negotiated price, there's a pretty good chance they'll be substituted for an even cheaper generic. But it's even worse. As it happens, during the negotiation, Novartis actually just recently lost its patent litigation on the product in the Federal Circuit, and so the neg price is going to be pretty meaningless even sooner.
4. So, if the incremental negotiated savings were modest, was there any other benefit to patients? Probably yes, though it's the result of a rather significant irony. Under the IRA, the negotiated prices have to be passed through to the benefit of patients at the point of sale (though CMS still hasn't really developed a mechanism to make that happen, and someone is going to win a ginormous government data processing contract to make it happen). So yes, patients will benefit in the sense that they will realize the benefits of the discounts that are already in the system that are currently gobbled up by middlemen such as plans, PBMs, specialty pharmacies, distributors, and the like. What's ironic about that is that the whole approach of making existing manufacturer discounts and rebates available at the point of sale to benefit patients was Trump's on this issue. (Indeed, his administration promulgated a reg on the matter, which the Biden administration withdrew early on.)
5. Note though that the system is not "that" simple, and there are some risks to those patient benefits. First, to the extent that patient costs will be lower, it is likely that they may be subject to cost-sharing for a longer period of time rather than getting to the catastrophic/no copay portion of the drug benefit. Second, while Medicare plans/pbms will have to "cover" negotiated price drugs on formulary, the law does not necessarily limit how the plans/pbms may regulate/limit that coverage, and frankly, due to rebates available to them on competing drugs that haven't been subject to negotiations, they have an incentive to do so. For example, a pbm may place a negotiated price drug at a less preferred formulary tier, or subject it to step edits, because it may be less profitable to the pbm at either the pharmacy or claims payment level. In short, the system does retain some of its "squeeze the balloon" features.
6. Finally, a word about pending litigation. Thus far in the district courts, the administration is something-and-oh, and maybe more importantly, I think has managed to get these cases in circuits that aren't the Fifth. Putting my lawyer nerd hat on, what's interesting about these cases is that thus far the lower courts seem to be holding to existing precedent in Takings cases to the effect that, no matter how big a gun is being held to your head, if you accede to the hostage taker's demands, you have done so voluntarily, and that defeats a Takings claim. It'll be interesting to see whether the courts of appeal continue to tow that line or whether any limits emerge--- Interestingly, Scotus has not recognized such a "voluntariness" principles when it comes to state governments and the power of federal matching funds.
1. As reflected in some other threads, the administration's pressers touted that they had negotiated $6B in savings on the ten drugs, reflecting discounts in the 70%+ range. Candidly, that's very misleading, as the $6B/79% figures are a comparison to list prices, which no one pays, and which do not nearly reflect the gross (list) to net margins of manufacturers reflecting discounts and rebates already in the system. But hey, it's a political presser, and certainly not the first or last in an election season to be very misleading.
2. So then, were there incremental savings negotiated? Yes. Most of the good data analysis (Fein, Hernandez) I've seen here suggests that (with one exception discussed below) the pre-existing gross to nets on these ten products were significantly in excess of 50%, that the final discounts aren't that far from the statutory minimum discounts, and that the net incremental discounts that have been negotiated through this process have probably been in the 6% range. A discount is a discount, so in that sense the process "worked," but the incremental "savings" is really pretty modest.
3. The "exception" noted above is Entresto (heart failure drug). The negotiated discounts there are more significant. Why? well, Novartis was expecting the product to lose patent protection in '26 when this kicked in, and when that happens, (i) your market price falls into the basement, and (ii) the next year, you're excused from negotiated pricing. So the significant Entresto discounts may not actually be meaningful as a practical matter, because even at the low negotiated price, there's a pretty good chance they'll be substituted for an even cheaper generic. But it's even worse. As it happens, during the negotiation, Novartis actually just recently lost its patent litigation on the product in the Federal Circuit, and so the neg price is going to be pretty meaningless even sooner.
4. So, if the incremental negotiated savings were modest, was there any other benefit to patients? Probably yes, though it's the result of a rather significant irony. Under the IRA, the negotiated prices have to be passed through to the benefit of patients at the point of sale (though CMS still hasn't really developed a mechanism to make that happen, and someone is going to win a ginormous government data processing contract to make it happen). So yes, patients will benefit in the sense that they will realize the benefits of the discounts that are already in the system that are currently gobbled up by middlemen such as plans, PBMs, specialty pharmacies, distributors, and the like. What's ironic about that is that the whole approach of making existing manufacturer discounts and rebates available at the point of sale to benefit patients was Trump's on this issue. (Indeed, his administration promulgated a reg on the matter, which the Biden administration withdrew early on.)
5. Note though that the system is not "that" simple, and there are some risks to those patient benefits. First, to the extent that patient costs will be lower, it is likely that they may be subject to cost-sharing for a longer period of time rather than getting to the catastrophic/no copay portion of the drug benefit. Second, while Medicare plans/pbms will have to "cover" negotiated price drugs on formulary, the law does not necessarily limit how the plans/pbms may regulate/limit that coverage, and frankly, due to rebates available to them on competing drugs that haven't been subject to negotiations, they have an incentive to do so. For example, a pbm may place a negotiated price drug at a less preferred formulary tier, or subject it to step edits, because it may be less profitable to the pbm at either the pharmacy or claims payment level. In short, the system does retain some of its "squeeze the balloon" features.
6. Finally, a word about pending litigation. Thus far in the district courts, the administration is something-and-oh, and maybe more importantly, I think has managed to get these cases in circuits that aren't the Fifth. Putting my lawyer nerd hat on, what's interesting about these cases is that thus far the lower courts seem to be holding to existing precedent in Takings cases to the effect that, no matter how big a gun is being held to your head, if you accede to the hostage taker's demands, you have done so voluntarily, and that defeats a Takings claim. It'll be interesting to see whether the courts of appeal continue to tow that line or whether any limits emerge--- Interestingly, Scotus has not recognized such a "voluntariness" principles when it comes to state governments and the power of federal matching funds.
