Medicare users will see prescription drug pricing reform thanks to the Inflation Reduction Act.
In August 2022, Congress enacted prescription drug pricing reform in accordance with the Inflation Reduction Act. This is the most profound policy changes in prescription drug prices since 2003.
This law allows the secretary of the Department of Health and Human Services to negotiate prices for some brandname drugs with the most spending going to clinician-administered drugs and retail drugs. The law allows only 10 drugs to be negotiated annually in 2026 but will increase to 20 drugs annually in 2029.
The law also allows Medicare––the largest purchaser of prescription drugs in the United States––to directly negotiate drug prices. However, the legislation does come with limitations for Medicare.
“The legislation imposes upper bounds on the negotiated price: no greater than 75%, 65%, and 40% of the nonfederal average manufacturer price for drugs 9 to 12 years, 12 to 16 years, and more than 16 years after approval respectively,”wrote Aaron S. Kesselheim, MD, JD, MPH, and colleagues in a viewpoint article published in JAMA.
Prices will be eligible for negotiation 9 years after drug approval,or for 13 years for biologics, until a generic or biosimilar competitor is introduced. Once a negotiated price is settled, Medicare Part D plans will be required to cover the drugs on their formularies.
Drugs that account for less than $200 million of annual Medicare spending and drugs that are approved for single rare diseases will be exempt from negotiations. Prices can additionally be renegotiated if material changes occur, like the approval of a new indication.
Another major aspect of the Inflation Reduction Act is that manufacturers will be penalized for increasing drug prices faster than inflation, starting in October 2022. In 2024, annual out-of-pocket costs will be capped, allowing more low-income Medicare patients to qualify for subsidized out-of-pocket costs.
Cost-sharing for insulin products will be capped at $35 per month for Medicare beneficiaries as well. Many top-selling drugs in the Medicare program will likely be eligible for negotiation under this act.
With the passage of this law, implementation of these pricing reforms now becomes the main focus. It is up to Medicare to ensure that selecting drugs to be negotiated and the evidence that supports these choices is clear.
“The drug pricing provisions in the Inflation Reduction Act mark important reforms to the Medicare Part D program and a step toward greater affordability of prescription drugs for Medicare beneficiaries,” the authors wrote.“Current and future administrations will be able to use their executive authority to address limitations in the legislation and to work with Congress to potentially extend these reforms to privately insured and uninsured patients.”
One author reported a financial disclosure. For details, see the full text of the study.