Potential Medicare Savings on Inhaler Prescriptions Through the Use of Negotiated Prices and a Defined Formulary

Abstract

This study examines the estimated cost of asthma inhalers for individuals treated under Medicare Part B compared with those treated under the Veterans Affairs Health System, taking into account separate approaches to price negotiation.

Medicare is prohibited by US law from directly negotiating drug prices with manufacturers.¹ The Department of Veterans Affairs (VA) Health System, in contrast, relies on direct negotiation and closed formularies to reduce costs. A 2018 US congressional report found that Medicare would have saved $2.8 billion in 2015 if it had paid VA-negotiated prices for the 20 most commonly prescribed drugs to beneficiaries of Medicare Part D.² A 2019 study estimated that, for the 50 costliest oral drugs, Medicare Part D would have saved $14.4 billion in 2016 with VA-negotiated prices.³ However, neither study assessed the influence of formularies in conjunction with price negotiations, and the 2019 study excluded products with nonoral routes of administration.³

Many of the largest Part D expenditures are for drug-device combinations requiring inhaled or subcutaneous administration. Inhalers to treat asthma and chronic obstructive pulmonary disease alone accounted for more than $10 billion in Medicare spending before rebates in 2017.⁴ Many classes of inhalers contain several products with clinically equivalent effects. We estimated Medicare Part D savings that federal price negotiation and use of the VA formulary for inhalers might achieve.

Methods

We used the 2017 Medicare Part D Drug Spending Dashboard and Data to identify reported Medicare expenditures for inhalers,⁴ the 2017 Historical VA Pharmaceutical Price Files to obtain VA-negotiated prices,⁵ and the 2019 VA National Formulary (with recent formulary changes) to determine VA inhaler coverage in 2017.⁶ All these publicly available databases contained deidentified data. Because the study involved only publicly available data, it was not submitted for institutional review board approval at any institution, and informed consent procedures were not relevant.

Because rebates under Medicare Part D are not publicly disclosed,⁴ we assumed a price reduction of 28.7% on brand-name inhalers based on overall mean 2017 rebates. The VA price is set in part by statutorily mandated discounts, but the department may negotiate further price reductions, some of which are confidential. We assumed conservatively that no confidential rebates were offered for VA drugs. Unlike VA prices, Medicare expenditures include dispensing fees; to correct for this, we subtracted $2.50 from all Medicare claims.³ More details about the methods are in the eMethods in the Supplement.

To estimate what Medicare Part D would have spent if price negotiation were used, we multiplied the so-called Big 4 price, or when that was unavailable, the federal supply schedule price, for each inhaler by the number of inhalers prescribed under Medicare Part D. The Big 4 price applies to the VA, Department of Defense, Public Health Service, and the Coast Guard; the federal supply schedule price applies to all federal agencies. To estimate what Medicare Part D would have spent based on the VA formulary, we assumed that all beneficiaries of Medicare receiving an inhaler within each class would receive only the inhalers on formulary in that class and VA national contract prices would apply if available. The VA negotiates national contract prices by leveraging its ability to exclude drugs from its national formulary; these prices reflect larger discounts than federal supply schedule or Big 4 prices. Data analysis occurred from April 2019 to May 2019 via Google Sheets (Google).

Results

In 2017, Medicare Part D reported expenditures of $10.3 billion for 31 different inhalers across 8 classes; all but 1 was a brand-name product (Table 1). Assuming rebates of 28.7%, Medicare would have spent $7.3 billion on inhalers under Medicare Part D in 2017. If Medicare had paid VA-negotiated prices, expenditures would have totaled $5.9 billion, $1.4 billion (19.4%) less than the estimated $7.3 billion in postrebate spending. If Medicare had also instituted the VA formulary, expenditures would have totaled $3.1 billion, $4.2 billion (57.8%) less than the estimated postrebate spending (Table 2).

Table 1. Spending on the 31 Inhalers Prescribed in Medicare Part D in 2017 vs Estimated Spending Based on Veterans Affairs–Negotiated Prices.

Inhaler	Inhalers, No.	Medicare Spending, Millions of $
		Reporteda	Estimated With Rebatesa	Estimated With VA-Negotiated Pricesb
Inhaled corticosteroid–long-acting β agonist
Advair Diskus (fluticasone-salmeterol)	6 364 053	2362.6	1681.0	1459.0
Advair HFA (fluticasone-salmeterol)	564 872	226.8	161.3	129.6
Symbicort (budesonide-formoterol)	5 014 785	1500.8	1067.2	801.6
Dulera (mometasone-formoterol)	654 584	165.3	117.5	111.6
Breo Ellipta (fluticasone-vilanterol)	2 512 726	807.2	574.0	514.0
Subtotal	15 111 020	5062.7	3601.1	3015.9
Long-acting muscarinic antagonist–long-acting β agonist
Anoro Ellipta (umeclidinium-vilanterol)	1 084 854	382.7	272.2	213.5
Stiolto Respimat (tiotropium-olodaterol)	359 087	120.7	85.8	79.7
Subtotal	1 443 941	503.4	358.0	293.2
Inhaled corticosteroid
Qvar (beclomethasone)	785 811	115.7	82.1	93.1
Flovent Diskus (fluticasone)	197 394	38.6	27.4	22.2
Flovent HFA (fluticasone)	1 496 777	349.9	248.7	226.4
Asmanex Twisthaler (mometasone)	205 830	44.1	31.3	13.4
Aerospan HFA (flunisolide)	3784	0.8	0.5	0.3
Pulmicort Flexhaler (budesonide)	224 148	43.8	31.1	28.1
Alvesco (ciclesonide)	24 793	5.5	3.9	2.0
Asmanex HFA (mometasone)	46 550	9.1	6.4	4.0
Arnuity Ellipta (fluticasone)	156 815	28.5	20.2	18.0
Subtotal	3 141 902	635.9	451.7	407.5
Long-acting β agonist
Serevent Diskus (salmeterol)	179 278	62.5	44.4	31.5
Arcapta Neohaler (indacaterol)	6285	1.4	1.0	0.9
Striverdi Respimat (olodaterol)	15 119	2.7	1.9	1.4
Subtotal	200 681	66.6	47.4	33.8
Long-acting muscarinic antagonist
Spiriva Handihaler (tiotropium)	4 560 429	1653.6	1176.6	777.7
Tudorza Pressair (aclidinium)	149 659	44.9	32.0	30.8
Incruse Ellipta (umeclidinium)	1 115 687	365.6	260.0	165.0
Spiriva Respimat (tiotropium)	1 255 008	424.8	302.2	286.4
Subtotal	7 080 782	2489.0	1770.8	1259.9
Short-acting β agonist
Proventil HFA (albuterol)	258 850	18.7	13.2	7.3
Ventolin HFA (albuterol)	8 837 804	446.0	312.6	282.7
ProAir HFA (albuterol)	6 984 754	381.8	268.2	253.5
ProAir Respiclick (albuterol)	202 180	10.2	7.2	7.5
Xopenex HFA (levalbuterol)	190 450	12.8	9.0	4.0
Levalbuterol HFA (levalbuterol)c	126 529	7.2	7.2	5.0
Subtotal	16 600 566	876.8	617.5	559.9
Short-acting muscarinic antagonist
Atrovent HFA (ipratropium)	379 875	126.4	89.9	53.6
Short-acting β agonist–short-acting muscarinic antagonist
Combivent Respimat (albuterol-ipratropium)	1 467 362	505.5	359.6	257.0
Total	45 426 130	10 266.2	7295.9	5880.8

Abbreviations: HFA, hydrofluoroalkane; VA, Veterans Affairs.

^aThese values include a subtraction of $2.50 per Medicare claim to account for dispensing fees.

^bAll estimates for VA-negotiated prices in this Table are based on Big 4 or federal supply schedule prices. When reported, the Big 4 price is less than or equal to the federal supply schedule price. We used the Big 4 price when available and the federal supply schedule price when the Big 4 price was not available. This Table does not include national contract prices, because the Table aims to estimate the outcome of price negotiation in the absence of a closed formulary and negotiation of national contract prices depends on the VA formulary.

^cLevalbuterol tartrate is the only generic inhaler. The remainder are brand-name inhalers.

Table 2. Estimated Medicare Part D Spending and Savings Associated With Veterans Affairs Price Negotiation and a Closed Formulary.

Inhaler Class	Inhalers Prescribed in Medicare Part D	Inhalers on the VA Formulary	VA-Negotiated Prices per Inhaler, $a	VA-Negotiated Prices and Formulary, Millions of $
				Estimated Medicare Spending	Projected Medicare Savings
Inhaled corticosteroid–long-acting β agonist	15 111 020	Symbicort (budesonide-formoterol)	24.00	362.7	3238.4
Long-acting muscarinic antagonist–long-acting β agonist	1 443 941	Stiolto Respimat (tiotropium-olodaterol)	222.09	320.7	37.3
Inhaled corticosteroid	3 141 902	Asmanex Twisthaler (mometasone)b and Aerospan HFA (flunisolide)	65.20 and 82.19	205.8	245.9
Long-acting β agonist	200 681	Striverdi Respimat (olodaterol)c	92.80	18.6	28.7
Long-acting muscarinic antagonist	7 080 782	Spiriva Handihaler (tiotropium) and Spiriva Respimat (tiotropium)d	170.53 and 228.23	1295.6	475.1
Short-acting β agonist	16 600 566	Brand not specified (albuterol)e	33.84	561.7	55.7
Short-acting muscarinic antagonist	379 875	Atrovent HFA (ipratropium)	141.14	53.6	36.3
Short-acting β agonist–short-acting muscarinic antagonist	1 467 362	Combivent Respimat (albuterol-ipratropium)	175.13	257.0	102.6
Total	45 426 130	NA	NA	3075.8	4220.2

Abbreviations: HFA, hydrofluoroalkane; NA, not applicable; VA, Veterans Affairs.

^aThis Table uses the national contract price if available, the Big 4 price when the national contract price is not available, and the federal supply schedule price when neither the national contract nor the Big 4 prices are available. The only inhaler with a national contract price available is Symbicort.

^bWe assume here that the Asmanex on formulary is the Twisthaler rather than the HFA because the HFA was only approved by the US Food and Drug Administration in 2014, and the Asmanex inhaler had been on the VA formulary because 2006 (the Twisthaler had been approved by the Food and Drug Administration in 2005). Because 2 inhalers are on the formulary, we weighted the mean price of the inhaler by the number of Medicare Part D prescriptions filled for each in 2017 (98.2%, Asmanex; 1.8%, Aerospan).

^cNote that Foradil was excluded from this analysis. Foradil was on the VA formulary until January 2018, but the manufacturer stopped making this inhaler in October 2015. There were no VA drug prices for Foradil in 2017 and no record of Medicare Part D expenditures on Foradil in 2017.

^dThe VA took the inhaled capsule form of tiotropium off of its formulary in March 2015. However, the formulary now specifies that any formulation of tiotropium may be used. Because there are only 2 formulations (the Spiriva Handihaler and Spiriva Respimat), we assumed that both may be prescribed on the formulary. We weighted the mean price of the inhaler by the number of Medicare Part D prescriptions filled for each in 2017 (78.4%, Handihaler; 21.6%, Respimat).

^eThe VA National Formulary does not specify which albuterol inhalers are on the formulary. We therefore assumed that any of the albuterol inhalers may be prescribed. Here again, we weighted the mean price of the inhaler by the number of Medicare Part D prescriptions filled for each in 2017 (Proventil, 1.6%; Ventolin, 54.3%; ProAir HFA, 42.9%; and ProAir Respiclick, 1.2%). Because levalbuterol is not on the VA formulary (it was removed in June 2007), we assumed that all of the 316 979 levalbuterol inhalers prescribed under Medicare Part D were for albuterol instead.

Discussion

Medicare Part D could save considerably on inhalers through the use of negotiated prices and a defined formulary, potentially up to $4.2 billion per year based on $7.3 billion of estimated Medicare postrebate spending. This study may overestimate or underestimate potential savings because confidential rebates negotiated by Medicare and the VA were not included. Federal legislation allowing Medicare to negotiate directly with pharmaceutical companies has the potential to reduce spending on inhalers without compromising the quality of patient care.

Supplement.

eMethods.

eReferences.