Drug Shortages, Insurers in Congress: Readout Newsletter
- 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...
- government refrained from direct price negotiation, relying instead on market competition.
- For example, the CMS announced that drugs like Eliquis (apixaban), Jardiance (empagliflozin), and Xarelto (rivaroxaban) woudl be among the first subject to price negotiation.
“`html
The Inflation Reduction Act and Prescription Drug Pricing
Table of Contents
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 meaningful 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, relying instead on market competition. However,drug prices in the U.S. are substantially higher than in other developed countries where governments do negotiate. The IRA addresses this disparity 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 first 10 drugs selected for negotiation were announced in September 2023, with negotiated prices taking effect in 2026.
For example, the CMS announced that drugs like Eliquis (apixaban), Jardiance (empagliflozin), and Xarelto (rivaroxaban) woudl be among the first subject to price negotiation. CMS Press Release
Negotiation Process and Drug Selection
The negotiation process involves CMS engaging directly with drug manufacturers to reach lower prices. Manufacturers can choose to withdraw from Medicare and Medicaid if they don’t agree to the negotiated price, but doing so would mean losing access to a considerable portion of the U.S. market. The IRA outlines a phased implementation, starting with a small number of drugs and gradually expanding over time.
The initial selection of drugs focused on those without generic or biosimilar alternatives and with high Medicare spending. Specifically,to be eligible for negotiation,a drug must have been on the market for at least nine years (for small molecule drugs) or 11 years (for biologics). This timeframe is intended to encourage continued innovation while addressing the cost of established medications. the Congressional Budget Office (CBO) estimates that the IRA will reduce federal deficits by $265.2 billion over ten years, largely due to the savings from drug price negotiation. CBO Report on the Inflation Reduction act
As an example, the selection criteria prioritized drugs treating conditions like diabetes, heart disease, and blood clots, impacting millions of Medicare beneficiaries. The list of drugs selected for the first negotiation round can be found on the CMS website.
Impact on Medicare Beneficiaries and the Pharmaceutical Industry
The IRA is projected to significantly lower out-of-pocket costs for Medicare beneficiaries,particularly those with chronic conditions requiring expensive medications. The negotiated prices will apply to Medicare part D and Medicare Part B drugs. additionally, the IRA caps monthly insulin costs at $35 for Medicare beneficiaries. White House Fact Sheet
The pharmaceutical industry has expressed concerns about the impact of the IRA on innovation,arguing that reduced revenues from drug price negotiation could lead to decreased investment in research and progress. The Pharmaceutical Research and Manufacturers of America (PhRMA) has filed lawsuits challenging the constitutionality of the IRA’s drug price negotiation provisions. phrma Press Release. As of January 24, 2026, thes lawsuits are still ongoing, with rulings expected throughout 2026 and 2027.
As a notable example, PhRMA argues that the law violates the Fifth Amendment’s takings clause, claiming it effectively seizes intellectual property rights. Though, the Biden administration maintains that the IRA is a lawful exercise of Congress’s authority to regulate commerce and protect the health of Americans.
Future Developments and Ongoing Litigation
The implementation of the IRA’s drug price negotiation provisions is an evolving process. CMS is continuing to refine it’s negotiation strategies and address legal challenges. Further rounds of drug selection and negotiation are planned in the coming years, expanding the scope of the program. The impact of the IRA on drug innovation and access to medications will be closely monitored by policymakers, healthcare providers, and patients.