4 steps to successful drug price negotiations between payers, pharma companies


Medicare and private health insurers could successfully negotiate drug prices with pharmaceutical companies by employing a four-step framework backed by binding arbitration, according to a new report.

The report, developed by the Center for American Progress, notes that the arbitration process would give Medicare the required leverage to negotiate drug prices without the need to develop a formulary.

The proposed framework sets up a “pro-patient, value-based system” for drug pricing, CAP Vice President for Health Policy Topher Spiro said in an announcement emailed to FierceHealthPayer. “It makes critical medicines more affordable to patients and helps put their needs above those of drug corporations’ bottom lines,” he added.

Here are the four steps CAP suggests:

  1. In the first three months after a drug receives Food and Drug Administration approval, the Health and Human Services (HHS) secretary could opt to refer the drug for comparative effectiveness research review, which would be conducted by two independent, certified, nonprofit research organizations. Manufacturers could also submit their own internal data to be included in the review.
  2. Nine months later, the organizations would release a price recommendation report that categorizes the drug according to its comparative clinical and sets a recommended price for the drug--for most drugs, this will be the average manufacturer price. Certified organizations can request additional trials during a 90-day comment period following the release of the draft report. The review and recommendation process would be funded by reallocating an existing fee on insurers and requiring drug manufacturers to pay an equivalent fee.
  3. Medicare and private payers can then use the two organizations’ recommended prices for the drug to negotiate with the drug industry. If the payer is offered a higher price than in the recommended range, the manufacturer must submit “detailed information” about its pricing decision to the HHS secretary within three months. A payer could also request binding arbitration, in which an independent arbitrator chosen by the two parties could determine the drug’s price absent a settlement.
  4. To protect against situations in which a manufacturer raises a drug’s price long after its initial launch--such as Mylan’s controversial increase of the price of EpiPens--the HHS secretary would be able to restart the negotiation-arbitration framework after the third year by referring the drug to independent organizations for additional review.

Private payers already have been testing the waters with value-based pricing arrangements, as companies like UnitedHealth and Humana striking deals with manufacturers for pricey hepatitis C treatments and new cholesterol drugs, respectively. More recently, Cigna negotiated with Novartis on the price of the heart medication Entresto.