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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...
- For decades,the U.S.government refrained from direct price negotiation, unlike manny other developed countries.
- The first 10 drugs selected for negotiation were announced on August 29, 2023, and price negotiations began in 2024, with the negotiated prices taking effect in 2026.
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The Inflation Reduction Act and Prescription Drug Pricing
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 U.S. policy, as previously Medicare was prohibited from directly negotiating drug prices with manufacturers.
For decades,the U.S.government refrained from direct price negotiation, unlike manny other developed countries. Proponents of negotiation argued that it would lead to lower drug costs, while opponents, primarily pharmaceutical companies, maintained it would stifle innovation. The IRA addresses this long-standing debate by authorizing the Centers for Medicare & Medicaid Services (CMS) to select drugs for negotiation based on specific criteria.
The first 10 drugs selected for negotiation were announced on August 29, 2023, and price negotiations began in 2024, with the negotiated prices taking effect in 2026. CMS Announcement of First 10 Drugs
How Medicare Drug Price Negotiation Works
Medicare drug price negotiation under the IRA operates through a phased implementation. Initially, the law allows for negotiation of 10 drugs between 2026 and 2029. This number increases to 15 drugs between 2029 and 2034,and then to 20 drugs starting in 2034. Drugs eligible for negotiation must be single-source brand-name drugs without generic or biosimilar competition.
The negotiation process involves CMS engaging directly with drug manufacturers to determine a maximum fair price. Manufacturers can face penalties, including excise taxes and withdrawal from Medicare and Medicaid programs, if they refuse to participate in negotiations or fail to comply with the agreed-upon prices. Inflation Reduction Act Text
For example, the first drugs selected for negotiation include medications for diabetes (like Jardiance), heart failure (like Entresto), and blood thinners (like Xarelto). These drugs represent significant spending for Medicare Part D. KFF: What are the First 10 Drugs Selected for medicare Price Negotiation?
Impact and Ongoing Legal Challenges
The Congressional Budget Office (CBO) estimates that the IRA will reduce federal drug spending by $101.4 billion over ten years (2023-2032). CBO Report on the Inflation Reduction Act
though, the IRA has faced legal challenges from the pharmaceutical industry. Several lawsuits were filed arguing that the negotiation provisions violate the Fifth Amendment’s takings clause and due process rights. On January 17, 2024, the Eighth Circuit Court of Appeals upheld the constitutionality of the drug price negotiation provisions, rejecting claims brought by the Pharmaceutical Research and Manufacturers of America (PhRMA). Reuters: Appeals Court Upholds Constitutionality of Drug Pricing Provisions
As of January 28, 2026, the legal challenges continue to be monitored, but the core provisions of the IRA regarding drug price negotiation remain in effect. The Supreme Court has declined to hear PhRMA’s appeal as of December 2023.