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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 initial round of negotiations, CMS selected 10 drugs covered under Medicare Part D and Part B for price negotiation.
Teh Inflation Reduction Act and Prescription Drug Pricing
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, signed into law by President Joe Biden on August 16, 2022, amended this policy, authorizing the Centers for Medicare & Medicaid Services (CMS) to select drugs for negotiation. The law aims to lower costs for people with Medicare, reduce government spending, and spur innovation.
In the initial round of negotiations, CMS selected 10 drugs covered under Medicare Part D and Part B for price negotiation. These drugs treat conditions such as diabetes, heart failure, and blood clots. The negotiated prices are expected to save Medicare an estimated $98.5 billion over the next decade,according to the Congressional Budget Office. The first 10 drugs with negotiated prices were announced on September 12, 2023, and are available here.
How Medicare Drug Price Negotiation Works
The negotiation process is structured to balance cost savings with continued pharmaceutical innovation. CMS identifies eligible drugs based on criteria including high Medicare spending, lack of generic or biosimilar competition, and being single-source drugs. Companies then engage in negotiations with CMS, submitting offers and justifications for their prices.
The negotiation process unfolds in several phases. First, CMS publishes a list of selected drugs. Pharmaceutical companies then submit data to CMS. Following data review, CMS makes an initial offer, and companies can respond with counteroffers. This iterative process continues until a final price is agreed upon. Companies that refuse to negotiate or fail to reach an agreement face significant excise taxes. The CMS website provides a detailed timeline and explanation of the negotiation process.
For example, the negotiated price for Eliquis (apixaban), a blood thinner, was reduced to $3,473.59 annually, a 56% reduction from its 2023 list price of $7,857.08. This price reduction will affect approximately 1.4 million Medicare beneficiaries. Details on each negotiated drug and its price reduction are available in the Initial Maximum Fair Price List published by CMS.
Legal Challenges and Ongoing Developments
the implementation of the Inflation Reduction Act’s drug price negotiation provisions has faced legal challenges from the pharmaceutical industry.Several pharmaceutical companies filed lawsuits arguing that the law violates the Fifth Amendment’s Takings Clause and the fourteenth Amendment’s Due Process Clause.
On december 1, 2023, the U.S. District Court for the Southern district of Ohio dismissed most of the claims brought by PhRMA (Pharmaceutical Research and Manufacturers of America) and other industry groups. The court found that the law does not constitute a taking of property without just compensation and that it does not violate due process. However, some claims related to reporting requirements remain pending. the pharmaceutical industry is expected to continue pursuing legal challenges.
as of January 18, 2026, the negotiated prices for the initial 10 drugs are scheduled to take effect. CMS will continue to select additional drugs for negotiation in subsequent years, expanding the scope of the program. The White House fact sheet details the broader impact of the Inflation Reduction Act on healthcare costs.