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Feldman WB, Avorn J, Kesselheim AS. Potential Medicare Savings on Inhaler Prescriptions Through the Use of Negotiated Prices and a Defined Formulary. JAMA Intern Med. 2020;180(3):454–456. doi:10.1001/jamainternmed.2019.5337
Medicare is prohibited by US law from directly negotiating drug prices with manufacturers.1 The Department of Veterans Affairs (VA) Health System, in contrast, relies on direct negotiation and closed formularies to reduce costs. A 2018 US congressional report found that Medicare would have saved $2.8 billion in 2015 if it had paid VA-negotiated prices for the 20 most commonly prescribed drugs to beneficiaries of Medicare Part D.2 A 2019 study estimated that, for the 50 costliest oral drugs, Medicare Part D would have saved $14.4 billion in 2016 with VA-negotiated prices.3 However, neither study assessed the influence of formularies in conjunction with price negotiations, and the 2019 study excluded products with nonoral routes of administration.3
Many of the largest Part D expenditures are for drug-device combinations requiring inhaled or subcutaneous administration. Inhalers to treat asthma and chronic obstructive pulmonary disease alone accounted for more than $10 billion in Medicare spending before rebates in 2017.4 Many classes of inhalers contain several products with clinically equivalent effects. We estimated Medicare Part D savings that federal price negotiation and use of the VA formulary for inhalers might achieve.
We used the 2017 Medicare Part D Drug Spending Dashboard and Data to identify reported Medicare expenditures for inhalers,4 the 2017 Historical VA Pharmaceutical Price Files to obtain VA-negotiated prices,5 and the 2019 VA National Formulary (with recent formulary changes) to determine VA inhaler coverage in 2017.6 All these publicly available databases contained deidentified data. Because the study involved only publicly available data, it was not submitted for institutional review board approval at any institution, and informed consent procedures were not relevant.
Because rebates under Medicare Part D are not publicly disclosed,4 we assumed a price reduction of 28.7% on brand-name inhalers based on overall mean 2017 rebates. The VA price is set in part by statutorily mandated discounts, but the department may negotiate further price reductions, some of which are confidential. We assumed conservatively that no confidential rebates were offered for VA drugs. Unlike VA prices, Medicare expenditures include dispensing fees; to correct for this, we subtracted $2.50 from all Medicare claims.3 More details about the methods are in the eMethods in the Supplement.
To estimate what Medicare Part D would have spent if price negotiation were used, we multiplied the so-called Big 4 price, or when that was unavailable, the federal supply schedule price, for each inhaler by the number of inhalers prescribed under Medicare Part D. The Big 4 price applies to the VA, Department of Defense, Public Health Service, and the Coast Guard; the federal supply schedule price applies to all federal agencies. To estimate what Medicare Part D would have spent based on the VA formulary, we assumed that all beneficiaries of Medicare receiving an inhaler within each class would receive only the inhalers on formulary in that class and VA national contract prices would apply if available. The VA negotiates national contract prices by leveraging its ability to exclude drugs from its national formulary; these prices reflect larger discounts than federal supply schedule or Big 4 prices. Data analysis occurred from April 2019 to May 2019 via Google Sheets (Google).
In 2017, Medicare Part D reported expenditures of $10.3 billion for 31 different inhalers across 8 classes; all but 1 was a brand-name product (Table 1). Assuming rebates of 28.7%, Medicare would have spent $7.3 billion on inhalers under Medicare Part D in 2017. If Medicare had paid VA-negotiated prices, expenditures would have totaled $5.9 billion, $1.4 billion (19.4%) less than the estimated $7.3 billion in postrebate spending. If Medicare had also instituted the VA formulary, expenditures would have totaled $3.1 billion, $4.2 billion (57.8%) less than the estimated postrebate spending (Table 2).
Medicare Part D could save considerably on inhalers through the use of negotiated prices and a defined formulary, potentially up to $4.2 billion per year based on $7.3 billion of estimated Medicare postrebate spending. This study may overestimate or underestimate potential savings because confidential rebates negotiated by Medicare and the VA were not included. Federal legislation allowing Medicare to negotiate directly with pharmaceutical companies has the potential to reduce spending on inhalers without compromising the quality of patient care.
Accepted for Publication: September 17, 2019.
Corresponding Author: William B. Feldman, MD, DPhil, Division of Pulmonary and Critical Care Medicine, Brigham and Women’s Hospital, 75 Francis St, Boston, MA 02115 (firstname.lastname@example.org).
Published Online: December 2, 2019. doi:10.1001/jamainternmed.2019.5337
Author Contributions: Dr Feldman had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.
Concept and design: All authors.
Acquisition, analysis, or interpretation of data: Feldman, Kesselheim.
Drafting of the manuscript: Feldman.
Critical revision of the manuscript for important intellectual content: All authors.
Statistical analysis: Feldman, Avorn.
Obtained funding: Feldman, Kesselheim.
Administrative, technical, or material support: Feldman.
Supervision: Avorn, Kesselheim.
Conflict of Interest Disclosures: Dr. Feldman serves as a consultant for Alosa Health and has served as a consultant for Blue Cross Blue Shield of Massachusetts. No other disclosures were reported.
Funding/Support: This work was funded by Arnold Ventures, the Harvard-Massachusetts Institute of Technology Center for Regulatory Science, and the National Institutes of Health (grant 5T32HL0067633-34 [Dr Feldman]).
Role of the Funder/Sponsor: The funders had no role in the design and conduct of the study; collection, management, analysis, and interpretation of the data; preparation, review, or approval of the manuscript; and decision to submit the manuscript for publication.
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