Estimated discounts generated by Medicare drug negotiation in 2026

Abstract

BACKGROUND: Starting in 2026, Medicare will be able to negotiate drug prices. Although recent reports have identified the drugs that will likely face negotiation, no study has estimated the maximum negotiated price according to guidance from the Centers for Medicare and Medicaid Services.

OBJECTIVE: To identify the maximum negotiated price for the 10 drugs expected to be negotiated by Medicare in 2026.

METHODS: We apply peer-reviewed methodology to estimate 2020 rebates for the 10 drugs anticipated to be negotiated by Medicare in 2026. We compare rebates to the statutory minimum discounts to identify the maximum negotiated price in 2026 and estimate savings.

RESULTS: The minimum discount stipulated by the Inflation Reduction Act exceeds 2020 rebates for 4 of the 10 drugs expected to be negotiated in 2026, including etanercept, which is subject to a minimum discount of 60%, compared with an estimated rebate of 39.1%, and the cancer drugs ibrutinib, palbociclib, and enzalutamide, all of which will be subject to a minimum discount of 25%, compared with estimated rebates of 9%, 5.7% and 15.0%, respectively. Based on 2020 gross spending, the minimum required discount on these 4 drugs would generate savings of $1.8 billion.

CONCLUSIONS: In 2026, minimum discounts will only apply to 4 of 10 drugs likely subject to negotiation. For most drugs, net prices will establish the ceiling for the negotiated price. To achieve the savings projected by the Congressional Budget Office ($3.7 billion), negotiated prices will have to fall below the ceiling for the negotiated price established by the statute.

DISCLOSURES: This work was funded by the West Health Policy Center. Dr Hernandez reports consulting fees from Pfizer and Bristol Meyers Squibb, outside of the submitted work. Following the submission of this manuscript, Mr Dickson became an employee of American’s Health Insurance Plans. American’s Health Insurance Plans had no role in reviewing this manuscript. The statements, findings, conclusions, views, and opinions contained and expressed herein are not necessarily those of IQVIA Inc. or any of its affiliated or subsidiary entities.

Plain language summary

Medicare will negotiate drug prices starting in 2026. By law, the negotiated price cannot be higher than the price that Medicare plans currently pay after discounts or higher than a maximum percentage of the price based on how long a drug has been on the market. In 2026, current prices paid by Medicare plans will set the cap for the negotiated price for 6 drugs; minimum discounts based on drug’s age will apply to the remaining 4.

Implications for managed care pharmacy

Minimum statutory discounts will only apply to 4 of 10 drugs likely subject to negotiation in 2026, generating estimated savings of $1.8 billion. These estimates demonstrate the relevance of current rebates for drugs in competitive therapeutic classes in the setting of maximum discounted prices under Medicare price negotiations. For savings to meet the projections of the Congressional Budget Office ($3.7 billion), discounted prices would have to fall below the maximum negotiated price.

After the passage of the Inflation Reduction Act (IRA) in 2022, Medicare will be able to negotiate drug prices.¹ Medicare will negotiate prices for 10 Part D drugs for implementation in 2026, 15 Part D drugs for 2027, and 15 Part B or D drugs for 2028. After 2029, 20 drugs from across the 2 Parts will be negotiated every year. Negotiations will consider statutory input factors (research and development costs, prior federal research funding, production costs, and market sales and revenue) and comparative factors (effectiveness relative to other treatments, therapeutic advancement, and unmet medical need). The negotiated price will be capped at the greater of the net price after rebates or a maximum percentage of the list price on the basis of the drug’s age (discounted price ceiling). Specifically, until 2030, the negotiated price will be capped at 75% average manufacturer price (25% discount) for drugs marketed for 9-16 years and at 40% (60% discount) for drugs marketed more than 16 years.²

A recent report followed the statutory criteria to identify the drugs expected to face Medicare price negotiation in 2026-2028 but did not estimate the ceiling for their discounted prices.³ The Congressional Budget Office (CBO) projected total savings associated with price negotiation by year, but it is unclear to what extent these savings are a product of minimum statutory discounts or expected negotiation below the ceiling for the negotiated price.⁴ Recent studies have estimated savings that would have been achieved if the price negotiation had taken effect in 2018-2020, if the drugs were subject to negotiation earlier after approval, or if the drugs were selected based on net spending instead of gross spending.^5,6 To our knowledge, only 1 study has estimated savings associated with negotiation per the current text of the statute.⁶ However, this study by Reitsma et al used estimates of net prices from SSR Health data, which do not account for 340B discounts or the Medicaid Best Price provision.^6-8 These limitations of SSR Health data may have resulted in an overestimation of savings, as Reitsma et al used a 4% rebate estimate for ibrutinib (Imbruvica), the drug responsible for the majority of savings in 2026, when its manufacturer disclosed discounts in the 9.3%-9.5% range.⁹

We use a peer-reviewed method that overcomes the limitations of SSR Health data to estimate actual net prices faced by payers for the 10 drugs expected to be negotiated by Medicare in 2026.^10-14 The list of 10 drugs likely subject to negotiation was derived in a previous peer-reviewed report based on the statutory criteria, Part D gross spending, and anticipated entry of generic or biosimilar competition.³ We compare rebates to the statutory minimum discounts to identify the ceiling for the negotiated price in 2026 (the lower of the statutory minimum discount or the current rebate amount). We estimate minimum savings for drugs in which the negotiation ceiling price is below current rebates.

Methods

For the 10 drugs likely subject to negotiation by Medicare in 2026 based on 2020 gross spending and loss of exclusivity,³ we extracted 2020 data from 5 sources: (1) net sales from SSR Health¹⁵; (2) total units sold in the United States from IQVIA National Sales Perspective data¹⁶; (3) 2020 Part D claims from a 5% sample of Medicare beneficiaries; (4) units and spending from the Centers for Medicare and Medicaid Services (CMS) spending dashboards; and (5) drug age from the US Food and Drug Administration website.¹⁷

We apply a peer-reviewed method to estimate 2020 rebates negotiated between manufacturers and payers in the commercial and Part D markets. This methodology is described in detailed in the supplement and has been previously used in the peer-reviewed literature and validated against manufacturer reports of discounts for insulins.^10-13 Briefly, we estimate total discounts as the difference between drug gross and net sales revenues. From this difference, we subtract discounts to Medicaid, the 340B program, and the Part D coverage gap program and attribute the remaining amount to rebates. In estimating Medicaid and 340B rebates, we account for the Medicaid rebate cap as well as the Best Price provision, under which the Medicaid base rebate for branded drugs equals the greater of 23.1% of the average manufacturer price or the greatest discount offered to any party. We use Medicare Part D data to project the proportion of units eligible for 340B discounts and Medicaid state drug utilization data to estimate the number of units subject to Medicaid discounts. Medicare Part D coverage gap discounts are estimated using claims from a 5% random sample of Part D beneficiaries. One of the drugs subject to negotiation, budesonide/formoterol (Symbicort), has an authorized generic. To accurately estimate rebates for the branded product, we separately estimate Medicaid and 340B discounts for the brand and the authorized generic. We assume the same net-rebated price for each and report the rebate as a percentage of the branded price.

We compare rebates to the statutory minimum discounts to identify the maximum negotiated price in 2026. For drugs with rebates below the minimum statutory discounts, we estimate minimum savings associated with the maximum negotiated price. In doing so, we apply a 3% inflation rate to 2020 spending estimates.⁶

Results

The minimum discount stipulated by the IRA exceeds 2020 rebates for only 4 of the 10 drugs expected to be negotiated in 2026 (Table 1). These include etanercept (Enbrel), which will be subject to at least a 60% discount, up from an estimated rebate of 39.1%, and the cancer drugs ibrutinib (Imbruvica), palbociclib (Ibrance), and enzalutamide (Xtandi), all of which will be subject to a minimum discount of 25%, up from estimated rebates of 9%, 5.7%, and 15.0%, respectively. Based on 2020 gross spending, the minimum required discount on these 4 drugs combined would generate savings of $1.8 billion. For the remaining 6 drugs, the maximum negotiated price will be set by the current rebate.

TABLE 1.

Comparison of Statutory Minimum Discount and 2020 Average Rebate for All Formulations of Drugs Expected to Face Price Negotiation in 2026

Brand name	Generic name	Manufacturer	Spending in 2020a (in 2020 USD)	Spending in 2020b (in 2026 USD)	Years since approval	Minimum statutory discount,c %	Estimated PBM rebate in 2020,d %	Minimum savings,e $
Eliquis	Apixaban	BMS/Pfizer	9,936,069,814	11,864,186,980	13.0	25	38.7
Xarelto	Rivaroxaban	Janssen Pharm.	4,701,314,805	5,613,615,740	14.5	25	46.7
Januvia	Sitagliptin phosphate	Merck Sharp & D	3,865,087,773	4,615,116,931	19.2	60	61.6
Imbruvica	Ibrutinib	Pharmacyclics	2,962,909,304	3,537,868,658	12.1	25	9.0	564,302,391
Jardiance	Empagliflozin	Boehringer Ing.	2,376,166,292	2,837,266,818	11.4	25	59.7
Enbrel	Etanercept	Amgen	2,154,714,778	2,572,842,129	27.2	60	39.1	537,724,005
Symbicort	Budesonide/formoterol	Astrazeneca	2,135,408,250	2,549,789,125	19.5	60	68.3
Ibrance	Palbociclib	Pfizer US Pharm	2,108,937,188	2,518,181,293	10.9	25	5.7	486,972,123
Xtandi	Enzalutamide	Astellas Pharma	1,968,567,948	2,350,573,079	13.4	25	15.0	234,822,251
Breo Ellipta	Fluticasone/vilanterol	Glaxosmithkline	1,504,155,910	1,796,040,819	12.7	25	65.4
Total			33,713,332,062	40,255,481,572				1,823,820,770

Bold represents drugs for which 2020 average rebates were lower than the statutory discount established by the Inflation Reduction Act. For these drugs, the statutory discount will set the ceiling for the negotiated price. Blank cells represent the remaining 6 drugs for which the current rebate will set the ceiling for the negotiated price.

^aGross Part D spending in 2020 obtained from the Centers for Medicare and Medicaid Part D spending dashboard.

^bGross Part D spending in 2020 was updated to 2026 USD by using a 3% annual inflation rate, as previously done in the literature.⁶

^cThe Inflation Reduction Act establishes statutory minimum discounts, which until 2030 will equal 25% for drugs marketed for 9-16 years and 60% for drugs marketed for more than 16 years.¹ However, if average rebates exceed the minimum statutory discount, the negotiated discount must be greater than the current rebate.

^dAverage rebate to payers in 2020, estimated by using a peer-reviewed methodology that isolates discounts negotiated between manufacturers and payers from mandatory discounts under the Medicaid, 340B, and coverage gap programs.^10-13 The methodology is summarized in the methods and explained in detail in Supplementary Exhibit 1 (available in online article).

^eMinimum savings represent the savings achieved at the ceiling of the negotiated price. Savings may, however, be greater if negotiations achieve prices below the ceiling.

BMS = Bristol Meyers Squibb; DOAC = direct oral anticoagulant; PBM = pharmacy benefit manager; TKI = tyrosine kinase inhibitor; TNF = tumor necrosis factor; USD = US dollars.

Discussion

Although Medicare-negotiated discounts will be based on drug-specific input and comparative factors, statutory minimum discounts will cap negotiations based on drug age. In 2026, we estimate that minimum discounts will apply to 4 of 10 drugs likely subject to negotiation, which coincide with the 4 drugs in protected drug classes. High existing rebates will set the maximum negotiated price for 6 products in competitive therapeutic classes.

Our study contributes to the emerging literature on the drug negotiation provision of the IRA because it illustrates how CMS guidance applies in the setting of the maximum negotiated price. Our estimates demonstrate the relevance of current rebates for drugs in competitive therapeutic classes in the establishment of ceilings for negotiated prices. For protected drug classes with modest rebates, however, the minimum statutory discounts exceeded current discounts to payers. In these cases, minimum statutory discounts or Federal Supply Schedule prices will serve as the basis for initial price negotiations according to CMS guidance.²

A previous study by Reitsma et al estimated savings associated with drug price negotiation and, consistent with our analyses, reported that only 4 drugs will achieve savings under minimum statutory discounts.⁶ However, the savings figure estimated by Reitsma et al ($3.2 billion) is considerably higher than ours ($1.8 billion). The diverging savings estimates are largely explained by the use of SSR Health data in the study by Reitsma et al, which yielded estimates of rebates lower than ours for 3 out of 4 drugs generating savings (Imbruvica, Enbrel, and Xtandi). For instance, Reitsma et al estimated savings of $1.08 billion for Imbruvica using a 4% rebate estimate. We estimated savings for Imbruvica at $564 million with a 9% discount generated by our methodology. Of note, Abbvie disclosed in a Congressional investigation that net prices for Imbruvica were 9.3%-9.5% below list, which demonstrates that our rebate estimates are more accurate than those by SSR Health.⁹

Under our analysis, the statutory minimum discounts under the IRA will not be sufficient to achieve the savings estimated by the CBO associated with drug price negotiation ($3.7 billion).⁴ This is consistent with the CBO’s stated expectation that the negotiation process outlined in the IRA will generate savings beyond the minimum savings envisioned by the statute.¹⁸ These additional savings below the ceilings for negotiated prices correspond to $1.9 billion or an average 10% discount off the maximum negotiated price for the 10 drugs expected to face negotiation in 2026.

LIMITATIONS

Our study is subject to 4 main limitations. First, our study is limited to the 10 drugs expected to face Medicare negotiation in 2026, and this list is subject to uncertainty regarding the entry of generic or biosimilar competitors. Second, our estimates are based on 2020 data. Changes in utilization, spending, and discounts after 2020 may affect the list of drugs negotiated and the savings associated with statutory discounts. Third, our indirect estimation of net prices does not distinguish discounts to Federal programs, which are included under commercial rebates. Additionally, our methodology applies the average commercial rebate to estimate the best price for Medicaid and 340B program discounts, whereas, in practice, it is the greatest commercial discount that establishes the best price. This limitation may have led to an underestimation of Medicaid and 340B rebates and an overestimation of commercial net prices. Fourth, because of the uncertainty on the negotiation of prices below the maximum negotiated price, our savings figure only accounts for savings associated with minimum statutory discounts and not with the reduction of discounted prices below the ceiling for the negotiated price.

Conclusions

In 2026, minimum discounts will only apply to 4 of 10 drugs likely subject to negotiation. For most drugs, current net prices will establish the ceiling for the negotiated price. To achieve the savings projected by the CBO ($3.7 billion), negotiated prices will have to fall below the negotiation ceiling prices.