The Inflation Reduction Act will let Medicare negotiate prescription drug prices with manufacturers to combat soaring medication costs, which it’s never been allowed to do. So, the obvious question: If you’re on Medicare, will your drug costs come down?
The not-so-obvious answer: Possibly, though not imminently.
Medicare drug price negotiation “is a big deal,” says Andrea Ducas, vice president of health policy at the Center for American Progress, a progressive, nonpartisan policy institute.
Medicare drug price negotiation: ‘Pretty remarkable’
It’s actually enormously popular with bipartisan support, according to polls.
“Drug price negotiation actually puts America closer to sort of on par with where other countries are,” says Ducas. “It means that, for the first time, there will be an ability to have a little bit of counterweight to the pharmaceutical industry. It’s pretty remarkable.”
But drug price negotiations will likely be a much bigger deal for the federal government than for many of Medicare’s 65.7 million beneficiaries.
The Congressional Budget Office estimates that the negotiations—assuming they aren’t blocked by current lawsuits from drug companies and the U.S. Chamber of Commerce—will save the federal government roughly $100 billion by 2031.
A bigger deal for Medicare than for many on Medicare
“The negotiation program, I think, is designed more to save Medicare money on what it spends on these medications so it can invest in other improvements in prescription drug coverage for people with Medicare,” says Juliette Cubanski, deputy director, program on Medicare at KFF, a health policy research group.
One reason most beneficiaries won’t see their drug costs drop anytime soon due to price negotiations is that only 10 medications are on the initial list. They are the ones Medicare spends the most on, have no generic or biosimilar equivalents and have been on the market at least seven years.
The first drugs subject to price negotiation are the blood thinners Eliquis and Xarelto; the diabetes drugs Januvia, Jardiance, Farxiga, Fiasp/NovoLog and five other popular or expensive medications: Enbrel (for rheumatoid arthritis), Imbruvica (for blood cancers), Entresto (for heart failure) and Stelara (for psoriasis and Crohn’s disease).
Negotiated prices for those drugs, however, won’t kick in until 2026. Another 15 drugs will be added in 2027, followed by 20 more in subsequent years until there aren’t enough prescription medications that meet the Inflation Reduction Act’s requirements for negotiation.
The popular rheumatoid arthritis drug Humira and the multiple myeloma medication Revlimid are two that won’t qualify, Cubanski notes.
Starting in 2028, prescription drugs administered in medical clinics (ones covered by Medicare Part B) will become eligible for negotiations.
Who’ll notice effects most
“The people who might notice are those taking some of the more expensive drugs that Medicare is negotiating the prices of—like the cancer drug,” says Cubanski. The blood cancer drug Imbruvica costs about $600 per tablet or roughly $17,000 per month.
“A final negotiated price, on average [for the drugs on the list], is going to be probably at least 25% lower than the current price, maybe as much as 50% lower,” says Dr. Aaron Kesselheim, professor of medicine at Harvard Medical School and director of the Program on Regulation, Therapeutics and Law at Brigham and Women’s Hospital.
That doesn’t mean people on Medicare will necessarily see price drops of 25% to 50%, though. That’s because the negotiated figure will be based on the drug’s “list price” and doesn’t take into account manufacturer rebates. So, it’s not a dollar-for-dollar reduction in the price beneficiaries pay.
“For a lot of drugs, the cost sharing people face in Part D plans is a flat dollar copayment of maybe $40 or $45, and that’s not connected to the list price,” says Cubanski. “I think it’s much less clear whether these negotiated prices will translate directly into out-of-pocket cost savings for people who take drugs on the lower-cost side of the spectrum.”
A messaging challenge
Kesselheim concedes that “it will be a challenge in messaging for Medicare” when the public sees that price negotiations won’t necessarily mean lower costs for them.
He thinks the negotiated prices could, however, lead Part D insurers to charge less for premiums and lower copayments.
By law, the price negotiations will require Part D plans to offer the medications on the government’s list. “That has the potential to expand coverage of these medications once the negotiated prices take effect in 2026,” Cubanski says.
On the flipside, the plans won’t be required to cover similar drugs it already does.
So, you may get access to coverage of certain medications you don’t now or lose access to ones currently covered, unless you change Part D plans.
Whether you’ll benefit from negotiated prices will also partly depend on your Part D plan’s copayment and deductible rules. “It’s a little bit too early to say what negotiated prices would mean for any one individual who is taking drugs on the list,” says Ducas. “Certainly, the hope is that out-of-pocket costs would come down pretty substantially.”
The new law’s more significant change
You’re more likely to see your out-of-pocket prescription costs drop due to another part of the Inflation Reduction Act: the change in Medicare’s coverage for catastrophic prescription drug costs.
Starting in 2024, based on the law, you will no longer be required to pay 5% of your drug costs once you’ve spent roughly $3,300 on brand-name drugs, says KFF. In 2025, Part D out-of-pocket drug costs will be capped at $2,000, an amount that will be indexed to the growth rate in Part D costs.
Kesselheim says the cap on catastrophic prescription prices made it into the Inflation Reduction Act because Medicare will save so much money through drug price negotiations.
Fighting price negotiations in court
Manufacturers of the drugs subject to the new law have signed agreements to negotiate prices with Medicare even as they fight the planned rule in court. That’s because if they didn’t, and the law goes into effect, they’d be subject to heavy tax penalties.
Whether the court challenges will quash the negotiation rule is still a big question. Some analysts think the fight may ultimately go the Supreme Court, but many believe the law will stand.
“I think that we will see the law take effect the way it’s supposed to because I don’t think the constitutional challenges hold water,” says Kesselheim.
But if prices are negotiated down for a small number of drugs, some analysts say, manufacturers might raise them on their other medications to compensate or go slower bringing new prescriptions to market.
“I think a lot of that seems to me to be pretty speculative at this point, although I think some manufacturers say they have already made decisions internally to kind of shift resources,” says Cubanski.
No matter how things shake out, she adds, if price negotiations happen, “this is a step in the right direction.”
Says Ducas: “It’s a much-needed development that’s been a long time coming.”