Economic Analysis of Prescription Drug Pricing

Proposed methods of reducing US prescription drug prices would generally have only a small or very small impact on average prices in the retail sector, according to a recent report by the Congressional Budget Office (CBO)(tinyurl.com/2zm9zxtf). Only one approach—international reference pricing (IRP)—would have a large impact on average prices.   The agency assessed how each approach, if implemented in 2025, would affect average drug prices in 2031. An average price reduction of more than 5% was considered large; a reduction of 3-5% was moderate; a reduction of 1-3% was small; a reduction of 0.1-1% was very small; and a reduction of less than 0.1% was classified as no change. The impact on the drugs directly affected by these measures might be significant, but they would account for only a modest share of the total US pharmaceutical market.   For #IRP, the #CBO assumed a comparator basket of 12 countries. The maximum allowed price would be an average of the reference countries’ prices weighted by GDP per capita. The CBO calculated that this policy would reduce average prices by more than 5%—potentially, by substantially more than that figure.   #Medicare negotiation of drug prices could be expanded in two ways. Increasing the number of drugs subject to this measure to 50 per year could reduce average drug prices by 0.1-3%. Making negotiated prices available to all commercial purchasers could cut average prices by 1-3%.   Extending penalties for above-inflation price increases to the commercial sector could likewise reduce average prices by 1-3%.   The CBO also evaluated several approaches that would promote price competition or the sharing of pricing information:   ● Allowing commercial importation of drugs from other countries   ● Eliminating  direct-to-consumer drug advertising   ● Facilitating earlier launch of generics/biosimilars   ● Requiring PBMs to disclose net prices to insurers   ● Requiring public reporting of net prices for branded drugs   The first four of these approaches would reduce average prices by only 0.1-1%. The last method would produce no change (< 0.1%) or even a slight increase in average prices because “requiring manufacturers to publicly disclose #rebates that they pay to insurers or PBMs in Medicare Part D and commercial insurance would probably cause the net prices that those purchasers pay to rise slightly,” largely as a consequence of rebate convergence.   The CBO warns that price-cutting measures could “discourage manufacturers from investing in pharmaceutical R&D, and policies that induced larger changes in expected revenue or capital costs would have more pronounced effects on drug development. Because revenue earned earlier in a drug’s product cycle has a greater present value than the same amount of revenue earned later, reductions in expected revenue that occurred earlier in a drug’s life cycle would tend to dampen incentives to develop new products more than reductions occurring later would.” #US #drugpricing

Every drug pricing analysis needs a reality check. Personally, I use NADAC. It’s the only public benchmark that reflects what pharmacies actually pay, not what list prices suggest. --- In all of my #pharmacy trend and benchmarking work, I use NADAC (National Average Drug Acquisition Cost) as the “allowed amount” reference point. Why? Because NADAC is the closest thing we have to the true acquisition cost of a drug. It’s built from real invoice data collected from retail pharmacies across the country, not list prices, wholesale estimates, or % discounts. When comparing pricing strategies, PBM reimbursements, or payer contract performance, NADAC gives a grounded baseline. It allows us to see whether a network or plan is truly competitive, or simply hoping discounts off of AWP or WAC keep up with the market. --- Here are some signals for how it looks in practice: -When NADAC trends down but a plan’s allowed generic drug costs trend up, that’s a red flag for pricing misalignment. -When NADAC and plan generic drug costs move together, that suggests the #contract structure is keeping pace with market dynamics. -If a PBM/payer consistently has generic prices far above NADAC, it's time to take a deeper look and consider a new RFP. --- NADAC isn’t perfect, but it’s transparent, reproducible, and aligned with the market. Qualities that most legacy pricing metrics can’t claim. As generic prices continue to deflate and contract transparency becomes a bigger priority, grounding analyses in NADAC helps clarify what’s normal, what’s competitive, and where someone may be getting some nice margins. --- If you’re #benchmarking drug costs without NADAC as an anchor, you might be building the foundation of your contract on sand. How are you incorporating NADAC into your pricing analyses or contract reviews?

Drug pricing in the U.S. is under a global microscope. The President’s new #ExecutiveOrder proposes tying Medicare drug prices to a “favored nation” model—preventing the U.S. from paying more than peer countries like the UK, Germany, or Canada. Nearly 80% of Americans believe drug prices are too high, and over 70% support government-led negotiations. Why? Because Americans pay, on average, 2.78x more for drugs—and 4.22x more for brand-name medications—than patients in 33 other countries. With no price caps and a web of intermediaries like PBMs, the system is opaque and unsustainable. This policy would benchmark U.S. prices to the lowest paid internationally for Medicare Part B and D drugs. Sounds simple—but the ripple effects could be big: 1. Access: Drug launches could be delayed in smaller or lower-cost countries, impacting access globally. 2. Innovation: Lower profits in the U.S. could shrink global R&D—especially for rare diseases. 3. Implementation: Legal and logistical hurdles will complicate execution. During his first term, he attempted a similar policy which was blocked by the Courts. 4. Reform: Short-term wins won’t fix long-term structural issues like PBMs and patent games. We need drug pricing reform—but we also need transparency, competitive markets, and policies that protect both innovation and access. ABIG Health MBA@UNC Chiyo Robertson #drugpricing #healthcare #healthcareinnovation #globalhealth #medicare #pbm

How Prices for the First 10 Drugs Up for U.S. Medicare Price Negotiations Compare Internationally Americans pay more for brand-name prescription medications than do residents of most other countries, with per capita spending on pharmaceuticals nearly three times the average of other member nations of the Organisation for Economic Co-operation and Development (OECD). In 2022, high costs forced one of five U.S. adults age 65 and older to skip or delay filling a prescription, miss or reduce doses, or use someone else’s medication. More than half of patients resort to cost-coping strategies like coupons or free samples so they can get the medications they need but cannot afford. Such stopgap measures can have particularly serious consequences for older people who rely on medications to control chronic health conditions. The 2022 Inflation Reduction Act (IRA) has empowered the Centers for Medicare and Medicaid Services (CMS), for the first time, to negotiate prices on behalf of Medicare for a small group of prescription drugs. Negotiations for the first 10 drugs will begin in February 2024, with price changes taking effect in 2026. This will increase to 15 additional Medicare Part D drugs in 2027, up to 15 Parts B and D drugs in 2028, and up to 20 drugs in subsequent years. These price negotiations are projected to save the government $100 billion through 2031, savings that will go in part toward funding an important but costly provision of the IRA that caps Medicare beneficiary spending for Part D drugs at $2,000 per year, starting in 2025. The first 10 drugs to be negotiated by Medicare — used to treat conditions like blood clots, diabetes, and autoimmune disorders — were selected because they account for a significant portion of Medicare Part D spending. They meet key criteria set by the IRA for negotiable drugs: 1) no generic versions available, and 2) they are either small-molecule drugs that have been on the market for at least seven years or biologics that have been on the market for at least 11 years.

Cost-effectiveness analyses can serve as an important source of evidence, ensuring that Medicare negotiated drug prices more closely reflect the benefits drugs provide. In this just published paper in Value in Health led by Feng Xie and colleagues, we've reviewed the published cost-effectiveness evidence for the 15 drugs selected for IPAY 2027 currently undergoing negotiations. There are limitations and caveats (study methods vary, CMS cannot use QALYs), but we hope the paper furthers conversations on better ways to align drug prices with evidence of value. https://lnkd.in/e5AFXpDT Center for the Evaluation of Value and Risk in Health (CEVR) ISPOR—The Professional Society for Health Economics and Outcomes Research @brianbreid Joey Mattingly Sean Sullivan Joshua Cohen Dan Ollendorf Jason Shafrin Stacie Dusetzina McMaster University #pharmaceuticals #drugprices #heor #healtheconomics Inmaculada (Inma) Hernandez @brianbreid Kathryn Phillips Institute for Clinical and Economic Review (ICER)

Pfizer and AstraZeneca’s recent drug-pricing deals with the Trump Administration mark a sharp shift in how Washington is approaching the pharmaceutical industry. Facing potential 100% tariffs, both companies agreed to lower prices and expand U.S. investment under a framework that ties affordability to domestic production. This is not a one-time concession but a structural reset. Each company must now craft its own strategy—grounded in portfolio, data, and competitive position—to navigate a marketplace that emphasizes value. The Administration’s approach uses economic leverage rather than traditional price controls to achieve lower costs through negotiation and transparency. It also invites each manufacturer to develop its own plan of action, creating opportunities for companies to define how value is measured and communicated. To succeed, manufacturers must justify price differentials with evidence of outcomes that matter to patients at lower total cost. Those that can substantiate their claims with data will gain leverage; those that can’t will lose it. The agreements mark the beginning of a new era in pharmaceutical negotiation: one that rewards evidence, transparency, and domestic investment. Read more in my latest column for Forbes: https://lnkd.in/gDVv7jG2

If you want to set maximum drug prices based on prices outside the United States, how would that work? What’s a Most Favored Nation (MFN) clause—and what does it mean for U.S. drug pricing? This week's Executive Order is raising lots of questions, so let's dive in. 𝐁𝐚𝐜𝐤𝐠𝐫𝐨𝐮𝐧𝐝 International reference pricing is not new. Countries like Canada, France, and Germany already use it to set or negotiate maximum prices for brand-name drugs. The U.S. has historically resisted such models, but the cost gap has become harder to ignore. Revlimid, for example, sells for nearly $1,000 a pill in the U.S. and just a fraction abroad. [2,3] At the center of the order is a Most Favored Nation (MFN) clause, which would cap U.S. drug prices at the lowest price paid among a group of peer countries. Think of it as importing not the drugs themselves—but the prices. 𝐂𝐁𝐎 𝐑𝐞𝐩𝐨𝐫𝐭 A 2024 CBO report modeled this policy scenario, finding that tying U.S. drug prices to actual net prices in countries like Germany, Japan, and Canada could lead to a large reduction in U.S. brand-name drug prices—more than 5% on average, even after accounting for strategic responses by manufacturers. That’s the largest reduction among the seven pricing strategies CBO evaluated. [4] Broadly, three of the approaches would operate by capping the prices of prescription drugs or limiting price growth, while the four other approaches would operate by promoting price competition or by affecting the flow of information (e.g. transparent pricing, limiting DTC advertising). Of course, the details matter, and the trade-offs are real. 𝐆𝐥𝐨𝐛𝐚𝐥 𝐈𝐦𝐩𝐚𝐜𝐭 CBO noted that drugmakers could delay or limit launches in smaller countries to avoid triggering a low international reference price, or offer unobservable rebates and offsets to mask true prices abroad. In other words, pushing prices down in the U.S. could push them up—or push access down—in other countries. This approach has driven strong industry opposition. In 2020, PhRMA argued in litigation that MFN-style rules would hand foreign governments a say in what therapies are available to American patients—while reducing incentives for future innovation. That's not a great outcome, either. [5] So yes—this is a policy with real consequences, and that means real potential to reshape the broader kidney health landscape. *** What do you think? What else should we know or be thinking about here? -- Sources: [1] https://lnkd.in/e9CQGUmj [2] https://lnkd.in/eCyQaHtM [3] https://lnkd.in/e7QJs8gM [4] https://lnkd.in/ebaUDdkW [5] https://lnkd.in/e5pzu3GC Image Below: Manufacturers would be required to report to the HHS Secretary foreign net prices for all such products that they sell both domestically and in at least one of the foreign reference countries. Drug prices charged by manufacturers in the United States would be capped at a level reflecting the observed net prices in the reference countries (CBO Report).

Decoding US Drug Prices: It's More Complex Than You Think (A Numerical Example) 💊 Fellow drug developers and pharma leaders: are we *really* aware of how US drug pricing affects patients? It's a system that's easy to get lost in. A May 12, 2025, executive order aims to lower costs by aligning them with those in other economically advanced countries. But the truth is, it's complicated. I've been diving deep into this, and to make it clearer, I'm sharing a breakdown with a bespoke chart and key insights from the Wall Street Journal (page 2). It's worth noting that in many other countries, the government or affiliate, plays a more direct and transparent role in drug price negotiation, effectively acting as the PBM. This contrasts sharply with the US system. Here's a simplified look at how it works: 1️⃣ The Starting Point: WAC * The drug manufacturer sets the Wholesale Acquisition Cost (WAC). This is the first step in the chart.    * Example: WAC = $100 2️⃣ Manufacturer to Wholesaler * The drug moves to a wholesaler, who adds a markup.    * Example:        * Manufacturer sells to wholesaler for $98 (2% discount from WAC).        * Wholesaler adds a 4% markup ($4) to arrive at $102. 3️⃣ Price Negotiations: PBMs Enter * Pharmacy Benefit Managers (PBMs) negotiate with manufacturers. They secure rebates, which affect the net prices for insurers/plans.    * Example: PBM negotiates a $30 rebate.    * This results in two prices:        * WAC: $100        * Net Price: $70 ($100 - $30 rebate).    * PBMs keep part of the rebate. If a PBM keeps $25, the insurer/plan's cost is reduced by the remaining $5. 4️⃣ Pharmacy Pricing: Two Paths * The pharmacy acquires the drug from the wholesaler at a cost of $102. * The pharmacy then sets the consumer price, which varies:    * Insured Patients: Price is based on the $102 acquisition cost + a dispensing fee (e.g., $10).        * Price before insurance/patient split: $112 ($102 + $10).        * Example breakdown:            * Net Price: $70            * Insurer pays the pharmacy: $70 + $10 = $80 (net $75 after $5 rebate recovery)            * Patient pays: $112 - $80 = $32    * Cash-Paying Patients: Pharmacy sets a retail price (U&C: Usual and Customary) + dispensing fee.        * Example:            * U&C = $120            * Dispensing Fee = $10            * Total Cash Price = $130 5️⃣ The Final Transaction * The consumer pays:    * Insured patient: $32 (patient) + $80 (insurer) = $112    * Cash-paying patient: $130 Key Takeaway: A patient's final price is *significantly* different from the initial WAC, due to markups, rebates, dispensing fees, and insurance. PBMs and rebates add a layer of complexity (and often, opacity). 🤔 With the executive order targeting WAC, shouldn't we focus more on those middlemen, to truly address the root causes of high drug prices? COMMENT BELOW! I'll accept your connection request, so feel free to CONNECT! #pharmaceuticals #biotechnology #venturecapital

Pharmacy spend makes up over 25% of all healthcare expenses 🤯 With the cost of medications rising, what does this mean for employers? A recent Boston Globe Media report highlights how prescription drug costs are playing a major role in driving up healthcare expenses. They report that 5% of your employee population are responsible for 50% of your pharmacy costs. Especially for those companies that are self-insured—these costs aren’t just numbers on a report. They have a direct impact on budgets, employee premiums, and overall business sustainability. Here’s what employers need to know: 1. Hidden Fees Are Everywhere – Many organizations assume they’re managing costs effectively, but pharmacy benefit managers (PBMs) and pricing structures often contain hidden fees that drive up spending. If you're not actively managing your pharmacy program, you're likely overpaying. 2. Larger Companies Have More Control – Enterprise organizations often negotiate better deals and implement strategies to curb excessive drug costs. But what about mid-sized and smaller businesses? Without the right strategies in place, these companies are absorbing the costs without realizing where they could save. 3. Self-Insured Companies Feel It the Most – If your company is self-insured, you’re directly responsible for covering rising prescription drug costs. Without active oversight and smarter contracting strategies, these costs will only increase. My recommendations? ✅ Audit pharmacy spend to uncover hidden fees ✅ Negotiate better pricing and rebates to reduce unnecessary costs ✅ Implement smarter benefit strategies to help employees and the company save This isn’t just about cutting costs—it’s about sustainability, transparency, and ensuring employees get the care they need without breaking the bank. Are you seeing rising drug costs impacting your benefits strategy?

Implementing international reference pricing or an #MFN model for Medicaid drugs could create a cascade of negative fiscal and market effects, just as we’re seeing under the Inflation Reduction Act’s (#IRA) Medicare drug pricing reforms. Biopharma Pushback Will Be Symbolic, Not Financially Grounded: While the industry will object, Medicaid represents a small share of total pharma revenue. With the rebate cap removed, manufacturers are already incentivized to lower list prices—see Januvia as a recent example. States Will Lose Critical Revenue: Medicaid rebates are a major revenue stream, often diverted to general funds. MFN would reduce list prices and, by extension, rebates, leaving states with unexpected budget holes. PBM Margins Will Shrink: Many states outsource Medicaid drug benefits to PBMs that profit from spread pricing and retained rebates. MFN would erode both, much like MFP pricing under the IRA has done in Medicare. The real question isn’t how manufacturers will adapt, but how states and PBMs will absorb the disruption to their financial models.