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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, aiming to lower healthcare costs for seniors and taxpayers. This marked a meaningful shift in U.S.policy,as previously Medicare was prohibited from directly negotiating drug prices with manufacturers.
How Medicare Drug Price Negotiation Works
Beginning in 2026, the Centers for Medicare & Medicaid Services (CMS) will negotiate prices for 60 drugs – 20 drugs between 2026 and 2028, and an additional 20 drugs each year from 2029 to 2031 - covered under Medicare Part D and Part B. These are single-source brand-name drugs that 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 negotiation process involves CMS identifying eligible drugs, inviting manufacturers to submit offers, and then selecting the maximum fair price.Manufacturers who do not participate in negotiations or refuse to accept the negotiated price face significant excise taxes. CMS Fact Sheet: Inflation Reduction Act – Lowering Drug Costs provides a detailed overview of the process.
Drugs Eligible for Negotiation
The first 10 drugs selected for price negotiation were announced in September 2023. These include medications treating conditions like diabetes, heart failure, and blood clots. CMS Press Release: CMS Announces First 10 Drugs Selected for Medicare Drug Price Negotiation lists the specific drugs chosen for the initial negotiation round.
Examples of drugs included in the first selection are Eliquis (apixaban) for preventing blood clots, Jardiance (empagliflozin) for diabetes, and Entresto (sacubitril/valsartan) for heart failure. The negotiated prices are expected to take effect in 2026.
Impact on Medicare Beneficiaries
The Congressional Budget Office (CBO) estimates that the drug price negotiation provisions will reduce federal spending by $101.4 billion over ten years (2023-2032).CBO Report: The Budgetary Effects of the Inflation Reduction Act details these projections. These savings will be passed on to Medicare beneficiaries through lower premiums and cost-sharing.
Specifically, the CBO projects that approximately 55 million Medicare beneficiaries will experience lower out-of-pocket costs for the negotiated drugs. The exact amount of savings will vary depending on the individual’s drug usage and insurance plan.
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 drug price negotiation provisions, arguing that they will stifle innovation and reduce investment in new drug progress. phrma filed lawsuits challenging the constitutionality of the law, alleging that it violates the Fifth Amendment’s Takings Clause. PhRMA Press Release: PhRMA Files Lawsuit Challenging IRA Drug Pricing Provisions outlines their legal arguments.
As of January 27, 2026, the Supreme Court has agreed to hear arguments in the case, NetChoice LLC and the Chamber of Commerce of the United States of America v. Xavier Becerra, which challenges the constitutionality of the drug pricing negotiations. A ruling is expected in the summer of 2026. Supreme Court Docket: NetChoice LLC v. Xavier Becerra provides the official case information.
Future of Drug Pricing Reform
The Inflation Reduction Act represents a first step towards addressing high prescription drug prices in the united States. Further reforms, such as expanding the number of drugs eligible for negotiation and allowing Medicare to negotiate prices for all drugs, are being considered by policymakers. The biden Administration has also proposed allowing the Department of Health and Human Services (HHS) to use its existing authority to accelerate the availability of generic and biosimilar drugs. White House Fact Sheet: President biden Lowering Prescription Drug Costs for Americans details these ongoing efforts.
