Impact of Medicare Drug Price Negotiation on Spending

This technical report examines the effects of the Drug Price Negotiation Program (DPNP) on out-of-pocket spending for Medicare Part D enrollees. The DPNP allows the Centers for Medicare & Medicaid Services (CMS) to negotiate prices for the ten highest-expenditure, single-source brand-name drugs starting in 2026. The report outlines the eligibility criteria for drugs under negotiation and the methodology for determining maximum ceiling prices. It presents findings from a simulation conducted by Mathematica, which estimated that the DPNP could have reduced median out-of-pocket spending by 23% in 2021, with variations across demographic groups. Notably, American Indian/Alaska Native enrollees would have seen the greatest dollar savings. The report also discusses the implications of the Inflation Reduction Act, which includes a cap on annual out-of-pocket spending set at $2,000, further influencing future spending patterns. The analysis is based on comprehensive data sources, including Medicare Part D drug event data and FDA approval timelines.