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- The Inflation Reduction Act of 2022 (IRA) significantly altered the landscape of prescription drug pricing in the United States,allowing Medicare to negotiate prices for certain high-cost drugs and...
- the Inflation Reduction Act empowers Medicare to directly negotiate the prices of certain prescription drugs with pharmaceutical companies, starting in 2026.
- prior to the IRA, Medicare was largely prohibited from negotiating drug prices, unlike many other developed countries.The law phases in negotiations over time, beginning with 10 drugs in...
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Inflation Reduction Act Lowers Prescription Drug Costs
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The Inflation Reduction Act of 2022 (IRA) significantly altered the landscape of prescription drug pricing in the United States,allowing Medicare to negotiate prices for certain high-cost drugs and capping out-of-pocket costs for beneficiaries. This legislation, signed into law on August 16, 2022, represents the most substantial effort to control drug prices in decades.
Medicare Drug Price Negotiation
the Inflation Reduction Act empowers Medicare to directly negotiate the prices of certain prescription drugs with pharmaceutical companies, starting in 2026. This negotiation process aims to lower costs for both Medicare and its beneficiaries.
prior to the IRA, Medicare was largely prohibited from negotiating drug prices, unlike many other developed countries.The law phases in negotiations over time, beginning with 10 drugs in 2026, increasing to 15 drugs in 2027, and 20 drugs by 2029. Drugs eligible for negotiation are those without generic or biosimilar competition and are among the highest-spending drugs under Medicare Part D. the Centers for Medicare & Medicaid Services (CMS) released a list of the first 10 drugs selected for negotiation on September 20, 2023.
Example: The first 10 drugs selected for negotiation include Eliquis (apixaban), Jardiance (empagliflozin), Xarelto (rivaroxaban), Januvia (sitagliptin), Farxiga (dapagliflozin), Entresto (sacubitril/valsartan), Imbruvica (ibrutinib), Stelara (ustekinumab), Fiasp/NovoLog (insulin aspart), and Juulista (insulin glargine). These drugs accounted for $50.5 billion in Medicare Part D gross drug costs in 2022, representing nearly 20% of total Part D gross drug costs.
Pharmaceutical Company Responses
Pharmaceutical companies have largely opposed the drug price negotiation provisions of the IRA, arguing that it will stifle innovation and reduce investment in research and development. PhRMA, the Pharmaceutical Research and Manufacturers of America, has filed lawsuits challenging the constitutionality of the negotiation process.
Detail: These lawsuits allege that the IRA violates the Fifth Amendment’s Takings Clause, arguing that the negotiation process effectively forces companies to surrender their intellectual property rights without just compensation. As of January 24,2026,these legal challenges are ongoing,with rulings expected throughout 2024 and 2025.
Out-of-Pocket Cost Caps for Medicare Beneficiaries
The IRA also introduces a $2,000 annual out-of-pocket cap on prescription drug costs for medicare beneficiaries beginning in 2025. This cap applies to Medicare Part D, the program’s prescription drug benefit.
Prior to the IRA, Medicare beneficiaries faced perhaps unlimited out-of-pocket costs for prescription drugs. The new cap provides meaningful financial relief, particularly for those with chronic conditions requiring expensive medications. The Kaiser Family Foundation estimates that approximately 3.3 million Medicare beneficiaries spent more than $2,000 out-of-pocket on prescription drugs in 2020.
Example: A Medicare beneficiary with diabetes requiring insulin and other medications could previously face thousands of dollars in out-of-pocket costs annually. Under the IRA, their costs will be capped at $2,000, regardless of the total cost of their medications.
Impact on Insulin Costs
The IRA includes a specific provision capping the monthly cost of insulin at $35 for Medicare beneficiaries. This provision went into affect on January 1, 2023.
Detail: Prior to this cap, the cost of insulin varied significantly depending on insurance coverage and the type of insulin used, but could often exceed $100 per month. The $35 cap provides substantial savings for the millions of Americans with diabetes who rely on insulin.The centers for Disease Control and Prevention (CDC) provides facts on the financial burden of diabetes care.
Other Provisions
Beyond drug price negotiation and out-of-pocket cost caps, the IRA includes other provisions aimed at lowering prescription drug costs, including:
- Inflation Rebates: Requires drug manufacturers to pay rebates to Medicare if drug prices increase faster than inflation.
- Expanded Access to Vaccines: Provides free access to all recommended vaccines for Medicare beneficiaries.