INTRODUCTION

In 2010–2016, US gross drug spending grew by 30%, exceeding $450 billion in 2016.1, 2 Net spending, however, grew slower due to manufacturer discounts2—mostly in the form of rebates to insurers and pharmaceutical benefit managers negotiated in exchange for placement of drugs in preferred formulary tier. The Government Accountability Office estimates that in 2016 manufacturer discounts in Medicare Part D accounted for $29 billion, or 20% of Part D spending.3 Due to the confidential nature of negotiations, rebates and discounts are proprietary, and prior research has not been able to identify which drugs account for the majority of these discounts. We used indirect estimates of discounts from SSR Health4, 5 to identify the top drugs and therapeutic classes contributing to manufacturer discounts in Part D.

METHODS

Using the Medicare Part D spending dashboard,6 we identified 6 high-expenditure therapeutic classes with large rebates based on prior research,5 including insulins, non-insulin antidiabetics, inhalers, hepatitis C direct-acting antivirals (DAAs), direct oral anticoagulants (DOACs), and tumor necrosis factor (TNF) inhibitors. We extracted total Medicare Part D spending in 2016 for all drugs within these classes (n = 80).

We obtained SSR Health data on discounts for branded medications whose US sales are reported by publicly traded companies.7 These data have been used in peer-reviewed research.4, 5 SSR Health estimates prices net of discounts by dividing company-reported sales for each product by the number of units sold.7 Discounts are estimated as the difference between list and net prices, and are separately calculated for Medicaid and other payers.

For each drug in selected therapeutic classes, we estimated Part D discounts in 2016 US dollars by multiplying total spending reported in the dashboard by the 2016 average non-Medicaid discount from SSR Health. We used the non-Medicaid discount because SSR Health is not able to separately estimate discounts for Medicare.5, 7 We then estimated what proportion of the $29 billion in total Medicare Part D discounts was accounted for by each drug and therapeutic class.

There were 20 drugs with missing discount data because they are manufactured by private companies, including tiotropium, ipratropium, and ipratropium/albuterol. In those cases, we used the mean discount for the remaining drugs in the class as the discount estimate and performed sensitivity analyses excluding them. Because SSR Health discounts include not only rebates from manufacturers to payers but also any other manufacturer concession such as coupon cards or 340B discounts, we performed a sensitivity analysis in which we reduce discounts by 25%.

RESULTS

Discounts and rebates for these six therapeutic classes ranged from 24% (TNF inhibitors) to 60% (insulins and DAAs) (Table 1). These six therapeutic classes accounted for nearly $22 billion, or 76% of total manufacturer discounts in Part D. With over $7 billion in discounts, insulins accounted for 24% of discounts in Part D, followed by inhalers ($5.3 billion or 18%). After excluding products with missing data, the six therapeutic classes combined accounted for 68% of total manufacturer discounts. In sensitivity analyses reducing discount estimates by 25%, the six therapeutic classes combined accounted for 55% of total discounts.

Table 1 Medicare Part D Gross Spending and Estimated Discounts for Selected Therapeutic Classes, 2016
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Ten drugs accounted for $14.3 billion or 49% of total manufacturer discounts in Medicare Part D (ledipasvir/sofosbuvir, insulin glargine, insulin lispro, insulin aspart, fluticasone/salmeterol, sitagliptin, insulin detemir, budesonide/formoterol, rivaroxaban, and apixaban) (Table 2).

Table 2 Medicare Part D Gross Spending and Estimated Discounts for the Top Ten Drugs, 2016
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DISCUSSION

In 2016, six therapeutic classes accounted for a large majority of Medicare Part D discounts, with just 10 drugs accounting for nearly half of all Medicare Part D discounts. These findings demonstrate the high concentration of discounts in Part D.

Our analysis has two key limitations. We used estimates of discounts from payers other than Medicaid, which includes Medicare and also commercial insurance and the VA. Additionally, discount estimates include not only rebates from manufacturers to payers but also other concessions such as 340B discounts or coupon cards, which we addressed in part in sensitivity analyses. While it is unlikely that 340B discounts represented a large proportion of discounts for the selected therapeutic classes, there have been recent increases in coupon cards, leading to likely overestimation of discounts in primary analyses.

Nonetheless, our study demonstrates that the majority of Medicare Part D discounts originate from a few therapeutic classes. These classes include several branded products that are relatively interchangeable and thus compete for formulary placement through discounts.