Medicare starts a long road to cutting prices for drugs, starting with 10 costing it $50.5 billion annually – a health policy analyst explains why negotiations are promising but will take years
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Thursday, August 31, 2023
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The drugs are purchased through Medicare Part D, a prescription drug coverage program for Americans ages 65 and older.
Key Points:
- The drugs are purchased through Medicare Part D, a prescription drug coverage program for Americans ages 65 and older.
- The 10 medications accounted for more than US$50.5 billion in gross costs between June 1, 2022, and May 31, 2023.
- Pending successful negotiations, these changes would amount to what researchers estimated to be net savings of about $1.8 billion in 2026.
- Negotiations are expected to begin in October and continue until August 2024, with lower prices going into effect in 2026.
Cutting drug costs for Medicare enrollees
- The Inflation Reduction Act allows the Centers for Medicare & Medicaid Services to negotiate prices with the companies that make some of the most expensive drugs in the Medicare program, including life-saving cancer and diabetes treatments like Imbruvica and Januvia.
- The Biden administration hopes that these cost savings will be passed down to Americans 65 and older through reduced Medicare Part D premiums and lower out-of-pocket costs.
- The Inflation Reduction Act also includes a separate provision that requires drugmakers, under certain conditions, to provide the Medicare program with rebates if drug price increases outpace inflation, starting in January of 2023.
Penalties for companies that won’t negotiate
- Pharmaceutical companies have to sign agreements to participate in the upcoming negotiations by October 2023.
- If drugmakers don’t negotiate, they will face stiff penalties in the form of a tax, reaching as high as 95% of U.S. pharmaceutical product sales.
- Alternatively, the companies may pull their drugs from the Medicare and Medicaid markets, meaning that seniors on Medicare would lose access to them.
Why US drug prices are so high
- While Americans spent more than $1,100 a year in 2019, Germans paid $825, the British paid $285 and Australians paid $434 per person.
- Of course, many other countries also directly set prices for drugs or use their monopoly on health services to drive down costs.
- For example, Dulera, an asthma drug, costs 50 times more in the U.S. than the international average.
- Januvia, a diabetes drug that is among the first 10 drugs up for price negotiation, and Combigan, a glaucoma drug, cost about 10 times more.
Strong resistance
- This is because potential Republican wins in the 2024 presidential and congressional elections could unravel or severely curtail the new drug negotiation policy.
- Indeed, Republicans have been working feverishly on designing a strategy to use the negotiations against Democrats in the upcoming elections.
Weighing the prospects
- For now, the effect will likely be small because patients already receive discounts on the listed drugs, bringing the net savings down substantially.
- However, the potential for real savings for Americans ages 65 and older will undoubtedly grow as more drugs become subject to negotiation.
- Moreover, drugmakers could also simply pull their drugs from Medicare and Medicaid to force the government’s hand.