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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...
- The IRA's drug price negotiation provisions, outlined in CMS Fact Sheet: Inflation Reduction Act Drug Price Negotiation, empower the Centers for Medicare & medicaid Services (CMS) to select...
- Drugs eligible for negotiation must have been on the market for at least nine years (for small molecule drugs) or 14 years (for biologics) without generic or biosimilar...
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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 meaningful shift in U.S.policy, as previously Medicare was prohibited from directly negotiating drug prices with pharmaceutical companies.
How Medicare Drug Price Negotiation Works
The IRA’s drug price negotiation provisions, outlined in CMS Fact Sheet: Inflation Reduction Act Drug Price Negotiation, empower 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 initial 10 drugs selected for negotiation were announced in February 2024.
Drugs eligible for negotiation must have been on the market for at least nine years (for small molecule drugs) or 14 years (for biologics) without generic or biosimilar competition. The law prioritizes drugs with the highest Medicare spending. Pharmaceutical companies that refuse to negotiate or fail to comply with the negotiated prices face significant excise taxes.
Example: On February 16, 2024, CMS announced the first 10 drugs selected for negotiation, including Eliquis (apixaban) for preventing blood clots, jardiance (empagliflozin) for diabetes and heart failure, and Xarelto (rivaroxaban) for preventing blood clots.CMS Press Release
Impact on Medicare Beneficiaries
The Congressional Budget Office (CBO) estimates that the IRA will reduce federal deficit by $265.2 billion over ten years (2022-2031), largely due to savings from lower drug prices. CBO Report: Budgetary Effects of the Inflation Reduction Act. These savings are expected to benefit Medicare beneficiaries through lower out-of-pocket costs and potentially lower premiums.
The negotiated prices will initially apply to Medicare Part D (prescription drug coverage) and will later extend to Medicare Part B (medical insurance, which covers some drugs administered by healthcare professionals). The Department of Health and Human Services (HHS) estimates that approximately 55 million Medicare beneficiaries will be affected by the drug price negotiation program. HHS Fact Sheet: One Year later, Inflation Reduction act Delivering Lower Health Care Costs
Pharmaceutical Industry Response and Legal Challenges
the pharmaceutical industry, represented by organizations like the Pharmaceutical Research and Manufacturers of America (PhRMA), has strongly opposed the IRA’s drug price negotiation provisions, arguing that they will stifle innovation and reduce investment in research and development. PhRMA filed lawsuits challenging the constitutionality of the law, alleging that it violates the Fifth Amendment’s takings clause. PhRMA Press Release
On January 17, 2024, the U.S. District Court for the Southern District of Ohio dismissed PhRMA’s lawsuit, upholding the constitutionality of the IRA’s drug price negotiation provisions. Reuters Report on Court Ruling. PhRMA has appealed the decision.
Future Expansion of Drug Price Negotiation
The IRA allows for the number of drugs subject to negotiation to increase over time. Starting in 2027, 15 drugs will be eligible for negotiation, increasing to 20 drugs by 2029. The law also includes provisions to penalize pharmaceutical companies that increase drug prices faster than inflation.