The Inflation Reduction Act will reduce Medicare drug costs in multiple ways
The Federal Government has given its people power to negotiate prices of the most expensive drugs paid by the Medicare program. The changes to the law to reduce drug costs are contained in the Inflation Reduction (IRA), signed by President Joe Biden in 2022.
In addition to dealing with drug prices, the IRA provides subsidies to reduce climate change, increase funding for the Internal Revenue Service and increase corporate taxes. The new law regarding drug prices has been described as the most significant health care legislation since the Affordable Care Act was passed
Prior to the IRA, the law prohibited Medicare from negotiating prices of drugs paid by Medicare.
The IRA takes a step-by-step approach to implementation. Beginning in 2026, the Department of Health and Human Services will select 10 drugs to be subject to negotiations with drug manufacturers. Each year thereafter, more drugs will be added to the list. By 2029, 60 drugs may be subject to negotiation.
Criteria for selection of drug
Drugs that will be subject to negotiation are paid under Medicare Part D (retail prescription drugs) and Medicare Part B (administered by physicians). The initial focus will be on drugs that cost Medicare the most. For example, the blood thinner Eliquis is used by 2.6 million Medicare beneficiaries at a total cost of nearly $10 billion per year (data from 2020).
To be eligible for negotiation, small molecule drugs must have been approved for at least nine years and biological products must have been licensed for at least 13 years. The rationale behind this rule is to allow drug companies to have more flexible pricing—and higher profits — for drugs and biologics that have been more recently developed.
When a drug has an approved generic or biosimilar product, the drug is no longer subject to negotiation, since market forces are likely to result in lower prices.
The rules on price negotiations apply only to purchases paid under the Medicare program, not to purchases made by private insurance or individuals outside of Medicare.
The Congressional Budget Office (CBO) estimates that the cost savings from negotiating drug prices will be approximately $102 billion over the next 10 years
Mandatory rebates and maximum copays
Beginning in 2023, the IRA will require rebates to be paid to the government on individual drugs if a drug’s price rises faster than the rate of inflation.
According to a survey by the Kaiser Family Foundation, from half of all drugs covered by Medicare had price increases above the rate of inflation (data from 2019-2020).
In 2024, the law will eliminate the 5% copayment that Part D beneficiaries pay when they are receiving “catastrophic coverage.” Under current law, the amount of the copayment is open-ended and can amount to more than $5,000 per year for patients receiving expensive treatments, such as for cancer or multiple sclerosis.
In 2025, the IRA will set a cap on copayments of $2,000 per year.
Insulin receives special treatment. Beginning this year, the maximum copayment for insulin under Medicare is $35 per month for the 3.3 million enrollees who use insulin. In addition, vaccines paid under Medicare Part D are to be provided without any cost-sharing by the recipient.
Pharmaceutical industry objection
The pharmaceutical industry opposed the cost control provisions of the IRA. Nicole Longo, senior director of public affairs of the Pharmaceutical Research and Manufacturers of America (PHRMA) said the legislation was “nothing short of government price setting…that will threaten patient access to medicines and future innovations.”
The IRA passed Congress along partisan lines. In the Senate, the IRA was supported by 48 Democrats and two Independents. There was no Republican support. Vice President Kamala Harris cast the tie-breaking vote. •
JEFF ATKINSON (JAtkin747@aol.com) is a professor for the Illinois Judicial Conference and has taught health care law at DePaul University College of Law in Chicago.