Study Makes Case for Rethinking Medicare Drug Price Negotiation Timeline

Small-molecule drugs and biologics may produce similar health benefits, but because small molecules tend to be priced lower than biologics, they often represent better value, according to a recent Health Affairs study. And the study authors argued those findings suggest it could be worth revising how the Medicare Drug Price Negotiation Program is set up.

The Inflation Reduction Act of 2022 requires that Medicare negotiate a Maximum Fair Price for selected small-molecule drugs nine years after they were approved by the FDA. Whereas for selected biologics, the negotiated price takes effect after 13 years.

To compare relative value of small-molecule drugs and biologics, researchers studied 199 small-molecule drugs and 72 biologics that were approved by the FDA between 1999 and 2018, corresponding to 225 small-molecule drug-indication pairs and 115 biologic drug-indication pairs. They used findings from studies published in PubMed to identify incremental health benefits in terms of quality-adjusted life-year (QALY) gains, which measure how well different kinds of treatments lengthen and/or improve patients’ lives.

The incremental health benefit for small-molecules and biologics was about the same: a median of 0.100 QALYs of benefit for the small-molecule drugs compared with a median of 0.084 for the biologics. Small-molecule drugs tend to be associated with lower median incremental costs ($4,738 versus $16,020 for biologics). In terms of the incremental cost-effectiveness ratio (ICER), which is computed by dividing the average incremental cost estimate by the average incremental QALY gain estimate, small molecules also tend to be more cost-effective ($108,314 per QALY versus $228,286 per QALY for biologics).

The median ICER for small-molecule drugs fell within the cost-effectiveness benchmark often used by U.S. stakeholders as reflecting reasonable value for money — between $100,000 and $150,000 per QALY — whereas the median ICER for biologics exceeded that benchmark.

Among the 20 drugs with largest QALY gains, 10 were small-molecule drugs, 15 were orphan drugs, and eight were indicated to treat a cancer. Orfadin (nitisinone), a small-molecule drug approved in 2002 to treat hereditary tyrosinemia type 1, topped the list with an average QALY gain of 28.23.

The incentives inherent in the IRA may cause drugmakers to shift their investment priorities from small molecules to biologics, argued the researchers, who are all affiliated with Tufts University. Yet the study suggested that given the favorable cost-effectiveness of small molecules, “differential timelines for price negotiation could have detrimental effects,” and policymakers should consider creating parity regarding the price negotiation timeframe for small-molecule drugs and biologics.

This infographic was reprinted from AIS Health’s biweekly publication Radar on Drug Benefits.