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The Inflation Reduction Act and Prescription Drug pricing
Table of Contents
The Inflation Reduction Act of 2022 allows Medicare to negotiate the prices of certain high-cost prescription drugs, beginning in 2026, aiming to lower healthcare costs for seniors and taxpayers.
for decades, Medicare was prohibited from directly negotiating drug prices with pharmaceutical companies. This prohibition contributed to substantially higher drug costs in the United States compared to other developed nations. The Inflation Reduction Act (IRA) changes this by authorizing the Centers for Medicare & Medicaid Services (CMS) to select drugs for negotiation, focusing on those without generic or biosimilar competition and that represent the highest expenditure for Medicare.
On august 29, 2023, CMS announced the first 10 drugs selected for medicare price negotiation, effective in 2026. These drugs treat conditions like diabetes, heart failure, and blood clots. CMS Press Release
How Medicare Drug Price Negotiation Works
Medicare drug price negotiation under the IRA is a phased-in process. Initially, only a limited number of drugs will be subject to negotiation, with the number increasing over time. The negotiated prices will be available to Medicare beneficiaries beginning in 2026.
The process involves CMS identifying eligible drugs, inviting manufacturers to submit offers, and then negotiating to reach a maximum fair price. If a manufacturer refuses to negotiate or doesn’t offer a price CMS deems fair, they face significant excise taxes. The negotiated prices apply to Medicare Part D and Medicare Part B drug coverage.
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 significant portion of Medicare’s drug spending. These drugs address a range of chronic and serious health conditions.
- Eliquis (apixaban) – Blood clot prevention
- Xarelto (rivaroxaban) – Blood clot prevention
- Farxiga (dapagliflozin) – Diabetes,heart failure,and kidney disease
- fiasp/NovoLog (insulin aspart) – Diabetes
- Januvia (sitagliptin) – Diabetes
- Entresto (sacubitril/valsartan) – Heart failure
- Imbruvica (ibrutinib) – Blood cancers
- Stelara (ustekinumab) – autoimmune disorders
- Spravato (esketamine) – Depression
- Jardiance (empagliflozin) - Diabetes,heart failure,and kidney disease
A detailed list of the selected drugs and their corresponding manufacturers is available on the CMS website: CMS Medicare Drug Price Negotiation Program
Legal Challenges and Industry Response
The pharmaceutical industry has actively challenged the constitutionality of the IRA’s drug price negotiation provisions in court. Several lawsuits were filed arguing that the law violates the Fifth Amendment’s Takings Clause and due Process Clause.
On December 1, 2023, the U.S. District Court for the Southern District of Ohio dismissed the lawsuits brought by PhRMA and other pharmaceutical companies, upholding the legality of the drug price negotiation program. Reuters Report on Court Ruling The industry has appealed the decision.
The Pharmaceutical Research and manufacturers of America (PhRMA) argues that the IRA will stifle innovation and reduce investment in the advancement of new drugs. PhRMA Statement on the IRA CMS maintains that the negotiation program is designed to balance affordability with continued innovation.
Impact on medicare Beneficiaries
The Inflation Reduction Act is expected to significantly lower out-of-pocket costs for Medicare beneficiaries who take the selected drugs. The negotiated prices will be available starting in 2026, and beneficiaries will see the savings at the pharmacy counter.
In addition to drug price negotiation,the IRA also includes provisions to cap out-of-pocket prescription drug costs for Medicare beneficiaries at $2,000 per year,starting in 2025. This cap will provide further financial relief for those with high drug expenses. The Kaiser Family Foundation provides detailed analysis of the IRA’s impact on Medicare beneficiaries: