While you purchase a automotive, there’s the sticker worth and what you really paid after haggling with the supplier over reductions. For prescribed drugs, the media usually studies on listing costs that are analogous to the “sticker worth” for vehicles. Nonetheless, what actually issues is the web worth, which is the value after reductions and rebates. One key query is, how properly do Medicare Half D plans do at negotiating costs down from their listing worth.

A paper by Ippolito and Levy (2023) goals to reply that query utilizing 2007-2019 knowledge on drug costs and rebates from SSR Well being and knowledge on drug utilization from Medical Expenditure Panel Survey (MEPS).
Utilizing these knowledge, they evaluate the relative dimension of rebates for branded drug based mostly on she share of sufferers who use the drug which can be lined by Medicare Half D. The authors discover that:

Internet-to-list worth ratios had been negatively correlated with [Medicare market shares] MMS within the later years of our pattern. In 2019, a ten% improve in MMS was related to a big 4.6% [95% CI: 2.1%, 7.1%] lower in net-to-list ratio. Distinction-in-differences confirmed net-to-list worth ratios of medication with above median MMS fell relative to these with beneath median MMS. By 2019, we observe an absolute discount of −0.2 [95% CI: −0.29, −0.11], representing 28% discount relative to the common ratio in 2010.

The research excludes doctor administered medicine and medicines which can be occasionally prescribed (i.e., <200,000 prescriptions).

The research finds that this relationship is stronger in later years, and hypothesize that modifications in Half D profit design type the Reasonably priced Care Act and Bipartisan Funds Act of 2018 had been a big motive for these further reductions. The authors describe the particular coverage change as follows:

In 2011, the Reasonably priced Care Act phased the protection hole down by requiring that producers provide a 50 p.c low cost off of listing worth on model medicine in that portion of the profit. Along with decreasing spending by enrollees, these reductions had been handled as if the enrollee had really spent that cash for functions of figuring out the place the beneficiary was within the profit design. The Bipartisan Funds Act of 2018 elevated these reductions to 70 p.c, which lowered plan legal responsibility on this section to simply 5 p.c.

Is that this a great factor? In a partial equilibrium sense, the reply is ‘sure’. Decrease web costs are good for Medicare’s backside line. Nonetheless, growing the rebates and reductions that producers probably will consequence both in increased listing costs–in order that the web worth stays fixed–or the quantity of R&D investments and new medicine coming to market will fall as drug reimbursement turns into much less beneficiant. Like something in well being economics, there are all the time tradeoffs.