The Effect of Medicare’s Drug Price Negotiation Program on Out-of-Pocket Spending

The Effect of Medicare’s Drug Price Negotiation Program on Out-of-Pocket Spending

Published: Dec 08, 2023
Publisher: Mathematica
Key Findings
  • The 10 selected drugs accounted for 13% of Part D spending
  • Prices of selected drugs in 2021 would have declined at least 63%, on average, at the point of sale
  • Out-of-pocket spending would have fallen 23% due to the DPNP, with variation across groups
  • Capping out-of-pocket spending would result in additional savings, on average

Medicare Part D provides prescription drug coverage for more than 50 million Medicare beneficiaries who choose to enroll. In recent years, the price of brand-name prescription drugs under Part D has increased dramatically, rising more than 10% per year from 2009 to 2018, and the average net cost of brand-name drugs is higher for Medicare D plans than for other federal payers. In response, Congress authorized the Medicare Drug Price Negotiation Program (DPNP) as part of the 2022 Inflation Reduction Act, giving the Centers for Medicare & Medicaid Services (CMS) authority to negotiate the prices of drugs with the highest Medicare expenditures and specifying a formula for the maximum ceiling price that the negotiated price cannot exceed.

To understand how the DPNP could affect the out-of-pocket spending of different groups of Medicare Part D enrollees, Mathematica simulated the DPNP process to estimate what ceiling prices and out-of-pocket spending on the 10 highest-expenditure drugs would have been in 2021, the most recent year for which complete Part D data were available.

In addition to sharp decreases in the prices of those drugs, we identified meaningfully different reductions in out-of-pocket spending by race and ethnicity and other beneficiary characteristics, with American Indian/ Alaska Natives enrollees realizing the greatest savings from DPNP policies and non-Hispanic Blacks and disabled enrollees the least.

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