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- The Inflation Reduction Act of 2022 (IRA) considerably altered the landscape of prescription drug pricing in the United States, allowing medicare to negotiate prices for certain high-expenditure drugs...
- The IRA empowers Medicare to directly negotiate prices with pharmaceutical companies for a limited number of high-cost drugs covered under Medicare Part D and part B.
- The negotiation process began with 10 drugs in 2023, increasing to 15 drugs in 2024, 20 drugs in 2025, and 25 drugs in 2026 and subsequent years.
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Inflation Reduction Act Lowers Prescription Drug Costs
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The Inflation Reduction Act of 2022 (IRA) considerably altered the landscape of prescription drug pricing in the United States, allowing medicare to negotiate prices for certain high-expenditure drugs and capping out-of-pocket costs for beneficiaries. These changes, phased in over several years, aim to reduce healthcare expenses for seniors and people with disabilities.
Medicare Drug Price Negotiation
The IRA empowers Medicare to directly negotiate prices with pharmaceutical companies for a limited number of high-cost drugs covered under Medicare Part D and part B. This is a fundamental shift, as previously, Medicare was prohibited from negotiating drug prices.
The negotiation process began with 10 drugs in 2023, increasing to 15 drugs in 2024, 20 drugs in 2025, and 25 drugs in 2026 and subsequent years. Drugs eligible for negotiation must be single-source brand-name drugs without generic or biosimilar competition.Negotiations are conducted by the Centers for Medicare & medicaid Services (CMS). The first negotiated prices went into effect on January 1, 2026.
Example: On August 29, 2023, CMS announced the first 10 drugs selected for price negotiation, including Eliquis (apixaban) for preventing blood clots, Jardiance (empagliflozin) for diabetes, and Xarelto (rivaroxaban) for preventing blood clots.CMS press Release
Eligible Drugs and Selection Criteria
To be eligible for negotiation, a drug must meet specific criteria outlined in the IRA. These include being a single-source brand-name drug, having no generic or biosimilar competition, and being among the highest-expenditure drugs under Medicare Part D and Part B. The CMS final rule details the specific methodology for selecting drugs.
The selection process prioritizes drugs that pose the greatest financial burden to Medicare beneficiaries and the Medicare program. CMS considers factors such as the drug’s total Medicare spending, the number of beneficiaries affected, and the potential for price reductions.
Out-of-Pocket Cost caps for Medicare Beneficiaries
The IRA introduces a $2,000 annual out-of-pocket spending cap for Medicare Part D beneficiaries, beginning in 2025. This cap applies to covered prescription drugs and includes both brand-name and generic medications. Prior to this, beneficiaries faced unlimited out-of-pocket costs, perhaps leading to significant financial hardship.
This cap is particularly beneficial for individuals with chronic conditions requiring expensive medications. It provides financial predictability and ensures access to necessary treatments. The CMS fact sheet explains the implementation of the out-of-pocket cap.
Evidence: According to a Kaiser Family Foundation (KFF) analysis, approximately 3.3 million Medicare Part D beneficiaries spent more than $2,000 out-of-pocket on prescription drugs in 2020, and would have benefited from the cap.
Impact on Insulin Costs
The IRA also includes a provision capping the monthly cost of insulin at $35 for Medicare beneficiaries, effective january 1, 2023. This applies to insulin covered under Medicare Part D and Part B. This provision was initially limited to those enrolled in Medicare Advantage plans, but was expanded to cover traditional Medicare beneficiaries. CMS Fact Sheet
Example: Prior to the IRA,a vial of insulin could cost over $300,placing a significant financial burden on individuals with diabetes. The $35 cap provides ample relief for these patients.
Pharmaceutical Industry Response and Legal Challenges
The pharmaceutical industry has strongly opposed the IRA’s drug pricing provisions, arguing that they will stifle innovation and reduce investment in research and progress. several pharmaceutical companies and industry groups have filed lawsuits challenging the constitutionality of the law.
The lawsuits primarily focus on arguments that the negotiation provisions violate the Fifth Amendment’s takings Clause and Due Process Clause. As of january 27, 2026, these legal challenges are ongoing, with rulings expected from various federal courts.