Abstract
Policy makers have proposed levying penalties for drug price increases that are higher than the rate of inflation for drugs covered in the US Medicare program, but research is lacking regarding the ways in which manufacturers might respond to those penalties. An understanding of manufacturers' responses to existing inflation penalties could inform such policy discussions. To estimate the association of existing inflation penalties in the US 340B Drug Pricing Program with manufacturer pricing behavior in the Medicare Part D program and associated changes in Medicare pharmacy expenditures. This study included a pooled cross-sectional time-series analysis of price changes for Medicare Part D drugs used annually by more than 5000 beneficiaries between January 1, 2013, and December 31, 2017. The percentage of Medicare Part D sales subject to inflation penalties in the 340B program was used to perform a regression analysis to estimate the association of inflation penalties with annual drug price changes. The 340B program requires manufacturers to sell their drugs at a lower price to safety-net health care organizations; this lower price includes a base discount and an additional discount equal to the amount of any price increase that is higher than the rate of inflation. Sales to these 340B-eligible health care organizations represent the market share of a drug subject to inflation penalties. Health care organization-level claims data were obtained from the Medicare Provider Utilization and Payment Data-Part D Prescriber database, and organizations were matched to the Office of Pharmacy Affairs Information System of the Health Resources and Services Administration to identify those organizations that were eligible for the 340B program. Price change and drug use data were obtained from the Medicare Part D Drug Spending Dashboard. Name-brand drugs were included in the analysis if they did not have generic competition and were used by more than 5000 individuals with Medicare Part D in 1 calendar year. Data analysis was conducted from January 1 to February 28, 2020. Annual price change was the primary outcome measure; spending changes associated with lower price increases were also estimated. Sales percentage subject to inflation penalties was the primary independent variable, and formulary classification was a control variable. Of 2148 brand-name drugs included in the database, 606 drugs were used by more than 5000 beneficiaries annually, with a mean sales percentage subject to inflation penalties of 12.1%. A higher sales percentage subject to inflation penalties was associated with lower annual price increases (between-effects coefficient, -0.114; 95% CI, -0.205 to -0.023; P = .01; fixed-effects coefficient, -0.380; 95% CI, -0.466 to -0.294; P < .001). Lower price increases owing to inflation penalties were estimated to be associated with a reduction in Medicare Part D pharmacy expenditures of $7.1 billion between 2013 and 2017. In this cross-sectional study, increases in the percentage of drug sales subject to inflation penalties were associated with lower annual price increases. Broader application of inflation penalties may help to reduce drug price increases and decrease overall drug spending.
Highlights
Legislation introduced in 2019 aimed to restrict drug price increases by requiring drug manufacturers to pay a rebate to the Medicare program to offset price increases that are greater than the rate of inflation.[1,2] After the introduction of these pieces of legislation, some commentators asserted that such policies could encourage price increases on drug sales outside of the Medicare program, shifting costs from the Medicare program to the commercial insurance market.[3]
A higher sales percentage subject to inflation penalties was associated with lower annual price increases
Association Between US Drug Sales Subject to Inflation Penalties and Extent of Drug Price Increases. In this cross-sectional study, increases in the percentage of drug sales subject to inflation penalties were associated with lower annual price increases
Summary
Legislation introduced in 2019 aimed to restrict drug price increases by requiring drug manufacturers to pay a rebate to the Medicare program to offset price increases that are greater than the rate of inflation.[1,2] After the introduction of these pieces of legislation, some commentators asserted that such policies could encourage price increases on drug sales outside of the Medicare program, shifting costs from the Medicare program to the commercial insurance market.[3]. Drug purchases in the Federal Supply Schedule program are subject to inflation limits during the contract period.[5] The Medicaid Drug Rebate Program requires manufacturers to provide an additional rebate for price increases that are higher than the rate of inflation; this additional rebate means that per-unit Medicaid drug costs decrease as drug manufacturers increase prices.[6] A third program, the 340B Drug Pricing Program, uses rebate calculation methods from the Medicaid Drug Rebate Program to establish purchase prices for eligible health care organizations, which include nonprofit hospitals and clinics that meet certain federal criteria based on patient population characteristics and funding sources.[7] To qualify for reimbursement of any of its products through the Medicaid Drug Rebate Program or the Medicare Part B programs, a drug manufacturer must sell its products to 340B-eligible health care organizations (referred to as covered entities) at a lower price, which includes a base discount and an additional discount equal to the amount of any price increase that is higher than the rate of inflation (ie, an inflation penalty).[8] Sales to these 340B-eligible health care organizations represent the market share of a drug subject to inflation penalties
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