What Round II of Medicare Part D Drug Prices Signify for the Pharma Industry

In a video interview with Pharma Commerce, Ed Schoonveld, value & access advisor for Schoonveld Advisory and author of The Price of Global Health, points out that the latest 15 drugs chosen for price negotiations under Medicare Part Dare not "negotiations" but rather government-mandated price reductions, based on a percentage discount determined by how far a drug is beyond its patent expiration. While the government has shown restraint in previous rounds, it’s expected that as more drugs are added to the list, Medicare pricing will experience a significant impact.

In this round, weight loss drugs like Ozempic, which have proven effective in managing diabetes, controlling HbA1c, and providing cardiovascular benefits, are included. However, these drugs are not yet approved for weight loss in Medicare patients, so their future role remains uncertain. While this could significantly affect Medicare pricing, Schoonveld notes that the private market is unlikely to be directly impacted by these changes in the short term. The government, however, influences physician fees for Medicare patients, which tend to be lower than those charged for privately-insured patients. This dynamic has led to the private sector subsidizing Medicare patients through premiums.

This trend may extend to drug pricing, where companies might raise prices in the private market to compensate for the government-mandated discounts in Medicare. Such changes could further strain the private sector, especially as employers and insurers are already expressing concerns about rising premiums and drug costs. Additionally, there is ongoing debate around potential restrictions on drug rebates, further complicating the financial landscape for both private insurers and consumers.

Schoonveld also offers a teaser on what to expect in his upcoming February “Value and Access” column.

A transcript of his conversation with PC can be found below.

PC: With the Centers for Medicare & Medicaid Services (CMS) recently revealing its choices for the 15 latest drugs to be covered under Medicare Part D for the second cycle of price negotiations, what does this mean for future drug prices? What implications does this have for the private market?

Schoonveld: Well, they're not negotiations. That's the first part. Let's be very clear. This is a law that allows the government to basically dictate a percentage discount off the drug price, depending on how far this beyond patent expiration. Now the government has shown some restraint in the last round. I think we wanted to be careful not to maybe rock the boat too much. I expect over time—as more drugs are entering—this can have a substantial impact on the Medicare pricing. That's the goal, of course, as well.

Now, in the current round, we're going to add 15 drugs. The next couple of rounds are going to be 15 drugs added. Of course, what you see here is that the weight loss drugs are added to the game. Ozempic is one of them. These drugs have clearly shown to be very good in helping diabetes patients with insulin, HbA1c control, and cardiovascular benefits as well, along with weight loss. Now, it's not approved for weight loss for Medicare patients, so that's something that we need to keep an eye on. We don't know where that's going to go. This is obviously a very big drug for Medicare, but also beyond Medicare.

It not going to influence the private market for now, because the private market is not at least directly influenced by this. So the question is, what's going to happen there? And interestingly, actually, if you do take a step back, Medicare fees for physicians are also dictated by the government—and they tend to be quite a bit lower than the commercial fees that are being charged for privately-insured patients—so the private industry is subsidizing Medicare patients beyond the normal Medicare premiums that everybody is paying. I expected something like that will happen here as well.

It’s got to come from somewhere, so it will be required for companies if they want to market the drug successfully, to charge a little bit more in the private market to be able to afford these discounts in the in the Medicare market. That's a very sensitive topic, because nobody wants to pay more. The question is, what does it mean for the private market? If the budget or the willingness to pay is going to be even more difficult because insurance companies and employers are already complaining about the amount of money that you spend on premiums, the price of drugs, etc. We saw actually that at the end of last year, as part of a potential bipartisan government funding bill, the rebates were going to be handled. I don’t know exactly what the content was, but there were going to be some limitations on that.