The US Department of Veterans Affairs (VA), unlike Medicare Part D, receives a minimum discount for prescription drug purchases and additionally relies on price negotiation and a national formulary to limit outpatient drug spending. A 2019 study found that Medicare could have saved $14.4 billion in 2016 from an estimated $32.5 billion in spending if it used VA-negotiated prices for the 50 costliest Part D oral drugs.1 Inhaled and injectable products represented 16 of the 50 costliest drugs covered under Medicare Part D in 2016.2 Recently, our research group reported that Medicare could have saved $4.2 billion of an estimated $7.3 billion in spending on inhalers in 2017 by using VA-negotiated prices and the VA formulary.3
Among injectable drugs, insulin has received particular attention for its high prices, which limit patient access. Since Congress and various states have pursued legislation to lower insulin prices, we estimated the savings that would result if Medicare Part D used VA-negotiated prices and the VA formulary.
We used the 2017 Medicare Part D Drug Spending Dashboard to determine spending on injectable insulin products and the number of dosage units (in milliliters) filled for each product.2 Medicare receives confidential drug-specific rebates from pharmaceutical companies beyond reported prices. We assumed rebates of 41% based on reported rebates on endocrine metabolic agents by the US Government Accountability Office.4 In a sensitivity analysis, we assumed an average rebate of 66% based on estimates from SSR Health (https://www.ssrhealth.com/).
The VA reports 3 types of drug prices: federal supply schedule (FSS) prices are negotiated for all federal agencies; Big 4 prices apply to the VA, US Department of Defense, US Coast Guard, and US Public Health Service and involve steeper discounts than FSS prices; and national contract prices, which are negotiated for the VA alone, rely on the VA’s national formulary to extract even deeper discounts than FSS or Big 4 prices.3 We used the Historical VA Pharmaceutical Price Files to obtain data on 2017 prices5 and the 2019 VA National Formulary (along with recent formulary changes)6 to determine VA insulin coverage in 2017. Estimated savings associated with VA-negotiated prices were based on Big 4 prices (or when unavailable, FSS prices), while estimated savings associated with use of the VA formulary were based on national contract prices (or Big 4/FSS prices when unavailable). Institutional review board approval was not required because all data were drawn from publicly available sources containing no individual patient information.
In 2017, Medicare Part D spent $13.3 billion before rebates and $7.8 billion after estimated rebates on 31 different insulin products across 6 classes (Table 1). If Medicare Part D had used VA-negotiated prices, we estimated that it would have spent $5.0 billion and saved $2.9 billion when compared with postrebate spending. If Medicare Part D had also implemented the VA’s formulary restrictions within each insulin class (and used national contract prices), we estimated total Part D spending at $3.5 billion, yielding savings of $4.4 billion when compared with postrebate spending (Table 2). In a sensitivity analysis assuming higher Medicare rebates, estimated postrebate spending would have been $4.5 billion, and savings associated with use of VA-negotiated prices and the VA formulary would have been $1.1 billion.
We found that Medicare Part D could have saved up to $4.4 billion on $7.8 billion of estimated postrebate spending on 31 different insulin products across 6 classes in 2017 by using the VA formulary and prices. An important limitation of our analysis is that drug-specific Medicare rebates are confidential, and we relied on a government-reported average estimate for endocrine agents. However, even when we assumed much higher rebates in a sensitivity analysis, savings using the VA prices and formulary still exceeded $1 billion. Further transparency regarding rebates would facilitate more precise estimates of savings.
Although insulin was discovered more than a century ago, the United States continues to pay steep prices to ensure that Medicare beneficiaries and other patients with diabetes have access to life-saving therapies. Our analysis underscores the potential for Congress to reduce prescription drug spending by allowing Medicare to negotiate with manufacturers and establish a formulary like the VA.
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 (wbfeldman@bwh.harvard.edu).
Accepted for Publication: November 30, 2019.
Published Online: February 3, 2020. doi:10.1001/jamainternmed.2019.7018
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: Feldman, Rome.
Acquisition, analysis, or interpretation of data: All authors.
Drafting of the manuscript: Feldman.
Critical revision of the manuscript for important intellectual content: All authors.
Statistical analysis: Feldman.
Obtained funding: Feldman, Kesselheim.
Administrative, technical, or material support: Feldman, Lehmann.
Supervision: Kesselheim.
Conflict of Interest Disclosures: Dr Feldman reports personal fees from Blue Cross Blue Shield of Massachusetts, Alosa Health, and Aetion outside the submitted work. Dr Rome reports personal fees from Blue Cross Blue Shield of Massachusetts for consulting at a single-day conference outside the submitted work. No other disclosures were reported.
Funding/Support: This work was funded by Arnold Ventures, the Harvard-MIT Center for Regulatory Science, and the National Institutes of Health (grant 5T32HL007633-34) to 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.
Disclaimer: The opinions expressed are those of the authors and do not reflect the views of the US Department of Veterans Affairs.
4.United States Government Accountability Office. Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utiliziation. July 2019.
https://www.gao.gov/assets/710/700259.pdf. Accessed November 26, 2019.