Making Prescription Drugs Affordable Again Via Negotiation

Medicare and private health insurance companies should have the power to negotiate drug prices with manufacturers, empowered by comparative effectiveness research (CER) data. This is at the heart of a proposal presented by the Center for American Progress (CAP) to make prescription drugs more affordable.

According to the Congressional Budget Office, Medicare can effectively negotiate for lower drug prices only if the CER data is supported with robust policy changes such as letting Medicare establish a formulary. However, according to CAP, the arbitration process itself would create a strong armamentarium for Medicare and would invalidate the need for a formulary.

Following are the 4 recommendations from CAP:

1. CER review determination

Following FDA approval, the drug manufacturer would set the price as is the current norm. In the subsequent 3-month period following approval, the HHS secretary could decide on a CER review for the drug by 2 independent organizations, with considerations for the price, prevalence, and use; approved indications; and alternative treatments for each approved use. The chosen organizations should:

• Be free of conflicts
• Be nonprofits governed by a board with representation by payers, patients, drug manufacturers, and consumer groups
• Use a transparent method for assessment

Manufacturers should have the freedom to submit any internal CER data they may have generated for review to the said organization.

2. Price recommendation report

The organizations would have a 9-month period to release a draft recommendation report that would categorize the drug as having added benefit, a minor benefit, or a significant benefit compared with available alternative products. Added benefits can be defined as improved health status, shortened disease duration, extended life expectancy, reduced side effects, and improved quality of life. Following a 90-day public comment period, the organizations would release a final report that would incorporate, as appropriate, the feedback received.

The final report would have a price recommendation, presented as the average manufacturer price (paid by retail pharmacies or wholesalers) for a standard course of treatment. For drugs that treat chronic conditions, the price would reflect the average price for a year’s worth of treatment.

The report recommends that the Patient-Centered Outcomes Research Institute be one of the CER organizations.

3. Public- and private-sector negotiations

The recommended price by the 2 organizations would represent the allowed price range for the drug. This, combined with the organizational reports and CER data, would inform payers to negotiate prices with the manufacturer. If the manufacturer’s price matched that of the range recommended by the 2 organizations, no extra steps would be needed.

However, if the recommended price is lower than the drug price, the company would have 3 months to justify their price to HHS. An arbitration could be requested by the payer, with the list of arbitrators created by the Government Accountability Office. In the absence of a settlement, the arbitrator could set the final price.

4. Protecting against excessive price increases

Negotiation on the drug price could happen anytime even after the drug price is set. After the third year of a drug launch, HHS can restart the process by conducting additional review. This could help keep excessive drug price increases in check.

The full proposal can be accessed here.