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- The Inflation Reduction Act (IRA),signed into law on August 16,2022,allows Medicare to negotiate prices for certain high-cost prescription drugs,aiming to lower healthcare costs for seniors and taxpayers.
- For decades, Medicare was barred from directly negotiating drug prices wiht pharmaceutical companies.
- Such as, in September 2023, CMS announced the first 10 drugs selected for Medicare price negotiation, including medications for diabetes, heart failure, and blood clots.
The Inflation Reduction Act and Prescription Drug Pricing
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The Inflation Reduction Act (IRA),signed into law on August 16,2022,allows Medicare to negotiate prices for certain high-cost prescription drugs,aiming to lower healthcare costs for seniors and taxpayers. This marks a significant shift in Medicare’s ability to control drug spending, a power previously prohibited by law.
For decades, Medicare was barred from directly negotiating drug prices wiht pharmaceutical companies. This prohibition contributed to the United States having significantly higher drug prices compared to other developed nations. The IRA addresses this by enabling the Centers for Medicare & Medicaid Services (CMS) to select drugs for negotiation based on factors like high Medicare spending and lack of generic or biosimilar competition. Negotiations began in 2023, with the negotiated prices taking effect in 2026.
Such as, in September 2023, CMS announced the first 10 drugs selected for Medicare price negotiation, including medications for diabetes, heart failure, and blood clots. CMS Press Release
Drugs Eligible for Negotiation
Not all drugs are eligible for negotiation under the IRA. The law initially focuses on drugs administered under Medicare Part D (prescription drugs) and Part B (physician-administered drugs) that have been on the market for at least nine years (for small molecule drugs) or 11 years (for biologics) without generic or biosimilar competition.
The number of drugs subject to negotiation will increase over time. In 2026, 10 drugs will be negotiated. This number will rise to 15 drugs in 2027, 20 drugs in 2028, and 25 drugs in 2029 and subsequent years. Inflation Reduction Act Text
As an example, drugs like Eliquis (apixaban), a blood thinner, and Jardiance (empagliflozin), used to treat diabetes and heart failure, were among the first selected for negotiation. New York Times Report on Initial Drug Selections
Impact on medicare Beneficiaries
The Congressional Budget Office (CBO) estimates that the IRA will reduce federal deficit by $265.2 billion over ten years (2022-2031). A significant portion of these savings comes from lower drug costs for Medicare. CBO Report on the Inflation Reduction Act
Beneficiaries are expected to see lower out-of-pocket costs for the negotiated drugs. The IRA also includes a $2,000 annual cap on out-of-pocket prescription drug costs for Medicare beneficiaries beginning in 2025.This cap applies to both Part D and Part B drugs.
As an example, a Medicare beneficiary currently paying $600 per month for a negotiated drug could see their monthly costs significantly reduced, potentially saving $7,200 annually. KFF Fact Sheet on Medicare Drug Pricing
Challenges and Legal Challenges
The implementation of the IRA’s drug pricing provisions has faced legal challenges from the pharmaceutical industry. Several lawsuits were filed arguing that the negotiation process violates the Fifth Amendment’s takings clause and due process rights.
In december 2023, a federal judge ruled against the pharmaceutical industry’s attempt to block the drug price negotiation program, allowing the process to move forward. Reuters Report on Court Ruling
The Pharmaceutical Research and Manufacturers of America (phrma), the industry’s lobbying group, continues to argue that the IRA will stifle innovation and reduce the development of new drugs. Though, supporters of the law maintain that it will make essential medications more affordable for millions of Americans.