How a Therapeutic Reference Pricing Approach Could Benefit Medicare's Drug Price Negotiations

A study published in Value in Health explores the potential savings for US Medicare by using a therapeutic reference pricing approach based on comparative effectiveness and costs of therapeutic alternatives to negotiate drug prices, estimating savings ranging from $186 million to over $3 billion. 

The Inflation Reduction Act (IRA) requires the US Centers for Medicare and Medicaid Services to negotiate prices for popular drugs in Medicare, taking into consideration factors such as effectiveness and cost of alternatives. However, the act does not provide specific details on how these adjustments will be made. This study suggests using a therapeutic reference pricing approach that links comparative effectiveness with the costs of existing alternatives to estimate potential savings in price negotiations. 

Researchers initially determined which drugs were likely to be chosen for Medicare negotiation and obtained comparative effectiveness ratings for selected drugs by referring to French Haute Autorité de Santé reports. Subsequently, for the drugs with minimal or no additional benefits, alternative treatments based on the insights from the French reports and US clinical guidelines were identified. Cost differences were calculated between the drug's estimated maximum price and the average cost of alternative treatments, or the least expensive alternative treatment. The potential yearly savings that could be achieved by initiating negotiations based on the expenses associated with alternative treatments were then calculated.  

The use of average spending in negotiations rather than the statutory ceiling price alone could result in potential savings to Medicare ranging from $186,541,340 to $2,173,441,197. Likewise, opting for the lowest cost alternative as a starting point could yield savings ranging from $199,872,163 to $3,605,904,765. 

“Although we do not expect Medicare to rely on French comparative effectiveness assessments, this study demonstrates the potential for additional savings when using comparative effectiveness and costs of therapeutic alternatives to inform the starting price for negotiations,” said researchers.  

Reference:  

DiStefano MJ, Levy JF, Odouard IC, et al. Estimated savings from using added therapeutic benefit and therapeutic reference pricing in United States Medicare drug price negotiations. Value in Health. 2023;26(11):1618-1624. doi:10.1016/j.jval.2023.08.004