10% of prescription drugs make up majority of Medicare drug spending, study finds
New data suggest that a targeted approach to negotiating the most expensive Medicare drugs could significantly impact federal drug spending.
A Kaiser Family Foundation study has found that the top selling 7% and 8.5% of drugs covered by Medicare, part D and B respectively, take up the majority of the federal government’s Medicare spending.
The 250 top selling drugs, each with one manufacturer and no competitive products on the market, account for 60% of net total Medicare part D spending. The top 50 selling drugs, also with one manufacturer each and no competitors, account for 80% of total Medicare part B spending.
The KFF data bouys policymakers’ push to focus on negotiating prices for the relatively small number of drugs that make up a disproportionately large amount of Medicare spending.
In 2019, Medicare part D spending reached $183 billion, not accounting for rebates, and covered more than 3,500 prescription products, according to the study. Only 13% of that spending went toward 2,208 drugs covered under Medicare and 27% went toward just over 1,000. Yet, 60% of that spending was used to cover 250 prescription medications. The study suggests policymakers should focus on determining fair, lower prices for these prescriptions. An average claim for one of these drugs could be up to thirteen times the price of the other 27% of prescriptions.
Oncology drugs like Revlimind and Imbruvica are among the 10 top selling drugs in Medicare D, accounting for nearly 16% of Medicare D spending and 0.3% of overall Medicare spending, ranging from $1 billion to $4 billion.
Similarly, Keytruda, Opdivo, and Rituxan treat cancer for patients whose prescriptions are administered by physicians at outpatient facilities and account for 2% of all Medicare covered drugs and 43% of part B spending, ranging from $1.7 to $2.7 billion.
The top selling 50 drugs covered under Medicare’s part B cost 80% of the total spending. The next 50 alone make up just 13% of spending and the remaining 485 account for less than 10%.
Under legislation that passed the U.S. House of Representatives in 2019, the cost of medications would be negotiated between HHS Secretary Xavier Becerra and pharmaceutical companies whose products have one manufacturer and no competition on the market.
That’s a departure from previous policies that have either been against limiting the number of drug prices the federal government can negotiate or the HHS Secretary participating in price setting all together. Democrats are pushing drug pricing measures similar to the bill to be included in Biden’s upcoming infrastructure bill.
House Speaker Nancy Pelosi’s Lower Drug Costs Now Act of 2019, passed the House with wide support from Democratic colleagues. The bill allows the federal government to negotiate at least 25 and up to 250 drug prices with pharmaceutical companies, increasing the minimum by five between 2028 and 2032 and again in 2033. Priority will be given to those with the highest Medicare D spending and overall U.S spending.
This amends the “non-interference clause” that prevents the HHS Secretary from playing a direct role in negotiating drug prices, a part of the 2006 Medicare Modernization Act. Price limits will be set by looking at the Average International Market and comparing medication costs domestically with spending by similar countries such as the UK and Canada.
Manufacturers that do not comply with new regulations will incur penalties, increasing 10% every quarter with a maximum of 95%. Experts argue the bill’s likelihood of passing the Senate is slim, but Democrats are trying to put provisions inspired by this bill into Biden’s infrastructure plan. As noted in KFF’s study, such focus on negotiating prices for the most expensive medications may “leave potential savings on the floor,” but expanding to negotiating all drugs could cause an administrative burden not able to justify the level of savings.
A 2019 KFF poll shows constituents of both parties largely agreed that the federal government should be negotiating prices for beneficiaries, saying the process would lower drug costs, especially among those void of competitors. However, Republican policymakers are against allowing the secretary to negotiate prices, in some cases arguing it will deter investments in research and development. However, the Democrat’s bill requires the secretary to consider these investments when determining a fair drug price. A 2019 Congressional Budget Office report estimates these legislative efforts to renegotiate drug costs could reduce federal spending for Medicare by 345 billion from 2023-2029.