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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...
- has relied on market competition to control drug prices, unlike many other developed nations where government negotiation is standard practice.
- On February 1, 2024, the Centers for Medicare & Medicaid Services (CMS) announced the first 10 drugs selected for Medicare price negotiation, effective in 2026.
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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 U.S. policy, as previously Medicare was prohibited from directly negotiating drug prices with pharmaceutical companies.
For decades, the U.S. has relied on market competition to control drug prices, unlike many other developed nations where government negotiation is standard practice. advocates for negotiation argued that Medicare’s large purchasing power could secure lower prices,while opponents,primarily pharmaceutical companies,contended that it would stifle innovation. The IRA represents a compromise, initially focusing on a limited number of drugs.
On February 1, 2024, the Centers for Medicare & Medicaid Services (CMS) announced the first 10 drugs selected for Medicare price negotiation, effective in 2026. CMS Press Release
How Medicare Drug price Negotiation Works
Medicare drug price negotiation, as established by the IRA, operates through a phased implementation. The law initially allows negotiation for 60 drugs – 50 in 2026-2027, 15 more in 2028, and another 15 in 2029. 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” for these selected drugs. Manufacturers can face significant financial penalties, including excise taxes and withdrawal from Medicare and Medicaid programs, if they refuse to participate or fail to comply with the negotiated prices. The negotiated prices will be available to all Medicare beneficiaries, regardless of their plan type.
The Congressional Budget Office (CBO) estimated that the IRA’s drug pricing provisions would save the federal government approximately $101.4 billion over ten years (2022-2031). CBO Report on the Inflation reduction Act
Drugs Selected for Initial Negotiation (2026)
The first ten drugs selected for Medicare price negotiation represent a range of conditions, including diabetes, heart disease, and blood cancers. These drugs where chosen based on their high Medicare spending and lack of generic alternatives.
The selected drugs are: Eliquis (apixaban),Jardiance (empagliflozin),Xarelto (rivaroxaban),Januvia (sitagliptin),Farxiga (dapagliflozin),Entresto (sacubitril/valsartan),Imbruvica (ibrutinib),stelara (ustekinumab),Fiasp/NovoLog (insulin aspart),and Byetta (exenatide). The list includes both oral medications and injectables.
According to CMS, these 10 drugs accounted for $50.5 billion in medicare Part D and Part B gross drug costs in 2022. CMS Fact Sheet on Drug Price Negotiation
Legal Challenges and Pharmaceutical Industry Response
The pharmaceutical industry has mounted significant legal challenges to the IRA’s drug price negotiation provisions, arguing that the law violates the Fifth Amendment’s Takings Clause and due process rights.These lawsuits allege that the negotiation process amounts to government coercion and will harm pharmaceutical innovation.
Several lawsuits were filed in the U.S. District Court for the Southern District of Ohio, consolidated into Ohio v. Becerra. On December 15, 2023, the court ruled largely in favor of the Biden governance, dismissing most of the pharmaceutical companies’ claims. However, the industry is expected to continue pursuing legal challenges.
The Pharmaceutical Research and Manufacturers of America (PhRMA),the industry’s lobbying group,has actively campaigned against the IRA and warned of potential consequences,including reduced investment in research and progress. PhRMA’s Position on the Inflation Reduction Act
Impact on Medicare Beneficiaries and Future Implications
The IRA’s drug price negotiation provisions are projected to significantly lower out-of-pocket costs for Medicare beneficiaries, notably those with high drug expenses. The negotiated prices will be phased in starting in 2026, with additional drugs added to the negotiation list in subsequent years.
Beyond the direct price reductions, the IRA also includes a $2,000 out-of-pocket cap for Medicare Part D prescription drug costs, starting in 2025. This cap will provide further financial relief for beneficiaries facing significant drug expenses. The law also eliminates the “donut hole” – the coverage gap in Medicare Part