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- The Inflation Reduction act of 2022 allows Medicare to negotiate the prices of certain high-cost prescription drugs, marking a significant shift in federal policy aimed at lowering healthcare...
- For decades, Medicare was prohibited from directly negotiating drug prices with pharmaceutical companies.
- In the first round of negotiations, CMS selected 10 drugs covered under Medicare Part D and Part B for price negotiation.CMS announced these selections on august 29, 2023,...
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The Inflation Reduction act adn Prescription Drug Pricing
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The Inflation Reduction act of 2022 allows Medicare to negotiate the prices of certain high-cost prescription drugs, marking a significant shift in federal policy aimed at lowering healthcare costs for seniors. This negotiation process began in 2023, with the first negotiated prices taking effect in 2026.
For decades, Medicare was prohibited from directly negotiating drug prices with pharmaceutical companies. This prohibition contributed to the United States having considerably higher drug prices compared to other developed nations. The Inflation Reduction Act changed this by authorizing 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. The law initially focuses on a limited number of drugs, gradually expanding over time.
In the first round of negotiations, CMS selected 10 drugs covered under Medicare Part D and Part B for price negotiation.CMS announced these selections on august 29, 2023, including medications for diabetes, heart failure, and blood clots. These negotiated prices are expected to lower costs for both Medicare beneficiaries and the program itself.
How Medicare Drug Price Negotiation Works
Medicare drug price negotiation, as established by the inflation Reduction Act, operates through a phased process managed by the centers for Medicare & Medicaid Services (CMS).
The process begins with CMS identifying eligible drugs - those without generic or biosimilar competition and with high Medicare spending. Pharmaceutical manufacturers than submit offers for the maximum price thay are willing to accept. CMS evaluates these offers and engages in negotiations. If an agreement isn’t reached, a manufacturer faces an excise tax or withdrawal of coverage for their drug under Medicare and Medicaid. CMS provides a detailed overview of the negotiation process on its website.
for example, the initial negotiation list included Eliquis (apixaban), a blood thinner, and Jardiance (empagliflozin), used to treat diabetes and heart failure. Reuters reported on August 29, 2023, that these selections represented a significant step towards lowering drug costs for millions of Americans.
Impact on Pharmaceutical Companies
The Inflation Reduction Act’s drug price negotiation provisions have drawn strong opposition from the pharmaceutical industry, which argues that the policy will stifle innovation and reduce investment in research and progress.
Industry groups, such as the Pharmaceutical Research and Manufacturers of America (PhRMA), have filed lawsuits challenging the constitutionality of the law, claiming it violates the Fifth Amendment’s takings clause. PhRMA’s press release on november 3, 2022 details their legal challenge. Though, the Biden administration maintains that the law is constitutional and will benefit patients by lowering drug costs.
According to a Congressional Budget Office (CBO) report from February 2023, the Inflation Reduction Act is projected to reduce federal drug spending by $101.4 billion over ten years.The CBO also estimates that the law will lead to a decrease in pharmaceutical company revenues.
Future of Drug Price Negotiation
The Medicare drug price negotiation program is set to expand in the coming years,with more drugs becoming eligible for negotiation.
Starting in 2027, CMS will select additional drugs for negotiation, and the number of drugs subject to negotiation will increase over time. The law also includes provisions to penalize pharmaceutical companies that increase drug prices faster than inflation. The White House provides a fact sheet outlining the long-term benefits of the Inflation Reduction Act, including the expansion of drug price negotiation.
As of January 26, 2026, the full impact of the Inflation Reduction Act on drug prices remains to be seen, but the initial negotiations and planned expansions signal a lasting change in the landscape of prescription drug pricing in the United States.the first negotiated prices are scheduled to be implemented in 2026, and KFF provides ongoing analysis