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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, a meaningful shift in U.S.
- Prior to the IRA, Medicare was largely prohibited from directly negotiating drug prices with pharmaceutical companies.
- The process involves selecting drugs without generic or biosimilar competition that account for the highest Medicare spending.
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Table of Contents
10.01.2026, 23:15 Uhr
The Inflation Reduction Act (IRA), signed into law on August 16, 2022, allows Medicare to negotiate prices for certain high-cost prescription drugs, a meaningful shift in U.S. healthcare policy. This negotiation process aims to lower out-of-pocket costs for seniors and reduce overall healthcare spending. Prior to the IRA, Medicare was largely prohibited from directly negotiating drug prices with pharmaceutical companies. The IRA changes this by authorizing the Centers for Medicare & Medicaid Services (CMS) to select drugs for negotiation based on specific criteria. Negotiations began in 2023, with the negotiated prices taking effect in 2026. The process involves selecting drugs without generic or biosimilar competition that account for the highest Medicare spending. CMS publishes a list of selected drugs each year. Pharmaceutical companies can then engage in negotiations with CMS. If a company refuses to negotiate or fails to reach an agreement, they face significant excise taxes or withdrawal from Medicare and medicaid programs.The final rule outlining the negotiation process was published by CMS in April 2023. Example: In February 2024, 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. This initial selection is projected to lower costs for approximately 50 million Medicare beneficiaries. The IRA specifies criteria for drug eligibility.Drugs must be single-source brand-name drugs, meaning they lack generic or biosimilar competition. They must also have been on the market for at least nine years (for small molecule drugs) or 11 years (for biologics). Furthermore, the drugs must be among those with the highest Medicare Part D spending. Section 399h of the Inflation Reduction Act details these requirements. The number of drugs subject to negotiation will increase over time. In 2026, 10 drugs will be negotiated. This number will rise to 15 drugs in 2027, 20 drugs in 2028, and 25 drugs in 2029 and beyond. This phased approach allows CMS to refine the negotiation process and assess its impact on drug innovation and access. The IRA’s drug price negotiation provisions have drawn strong opposition from the pharmaceutical industry, which argues that they will stifle innovation and reduce investment in research and advancement. Industry groups, such as the Pharmaceutical Research and Manufacturers of America (PhRMA), have filed lawsuits challenging the constitutionality of the law. Evidence: PhRMA filed a lawsuit in June 2023 arguing that the negotiation provisions violate the Fifth Amendment’s takings clause. The lawsuit was dismissed in December 2023, but PhRMA has indicated it will continue to pursue legal challenges. The primary goal of the IRA’s drug price negotiation provisions is to lower prescription drug costs for Medicare beneficiaries. The congressional Budget Office (CBO) estimates that the IRA will reduce government spending on prescription drugs by $101.4 billion over ten years (2022-2031). CBO’s report on the IRA details these projections. Beneficiaries will also benefit from a cap on out-of-pocket prescription drug costs in Medicare Part D,set at $2,000 per year starting in 2025. This cap will provide significant financial relief for individuals with high drug costs, notably those with chronic conditions. The How Medicare Drug Price Negotiation Works
Drugs Eligible for Negotiation
Impact on Pharmaceutical Companies
Potential Benefits for Medicare Beneficiaries