A pharmacist collects medicines for prescription at a pharmacy.
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Medicare is poised to renegotiate the prices of some of its most expensive drugs through a historic expansion of power that could reduce costs for many seniors as well as federal spending on the drug program. on your prescription.
The changes are part of a massive Congressional spending and tax bill that includes $433 billion in investments in health care and clean energy. House Democrats passed the Inflation Reduction Act on Friday in a party-aligned 220 to 207 vote, ending a legislative process that took more than a year.
The bill empowers the Secretary of Health and Human Services to negotiate prices for certain drugs covered under two different parts of Medicare and penalize drug companies that don’t follow the rule. The law also limits out-of-pocket costs to $2,000 starting in 2025 for people participating in Medicare Part D, the seniors’ prescription drug program.
Democrats have fought for decades to give Medicare the power to entice drugmakers to lower prices. But powerful pharmaceutical lobbying and the Republican opposition have shot down past efforts. Medicare Part D currently prohibits HHS from negotiating prices with industry.
But HHS is now on the cusp of gaining bargaining power. Chairperson Joe Biden expected to sign the bill into law soon.
The American Association of Retirees, which represents 38 million people, described the legislation as a historic victory for older adults. AARP CEO Jo Ann Jenkins said the group had been fighting for nearly two decades to allow Medicare to negotiate drug prices. Jenkins said earlier this week, “one step closer to actually bringing down the price of prescription drugs out of control.”
According to Andrew Mulcahy, a prescription drug pricing expert at the RAND Corporation, although the law is historic, the terms of negotiation are “very narrow” in design. And the negotiations won’t bring relief until 2026 when the renegotiated prices of the program’s ten most expensive drugs go into effect.
Left-wing lawmakers such as Senator Bernie Sanders, I-VT, have criticized the legislation for removing the majority of Americans from Medicare. On the other hand, for the pharmaceutical industry, even the limited scope of the bill is too far a bridge.
Negotiation Process
By law, HHS can negotiate prices for some of the most expensive drugs covered under Medicare Part B and Medicare Part D. The former covers specialty drugs administered by health care providers. while the latter covers drugs sold at retail pharmacies.
The program is divided into four phases over several years. Here’s how it works:
- Phase 1: HHS negotiates 10 Medicare Part D drugs. Prices take effect in 2026.
- Phase 2: HHS negotiates 15 Part D drugs. Prices take effect in 2027.
- Phase 3: HHS may negotiate 15 Medicare Part B or D drugs. Prices effective in 2028.
- Stage 4: HHS negotiates 20 Part B or D drugs. Prices take effect in 2029. Clerk can negotiate 20 drugs in all subsequent years.
Candidates can take the drug
How much seniors will benefit from the negotiations depends largely on which drugs the HHS secretary decides to target. More than 63 million Americans are covered through Medicare as a whole, and about 49 million are enrolled in Medicare Part D.
Before the Inflation Reduction Act was enacted into law, Medicare Part D was estimated to be worth just over $1.6 trillion over the next decade, according to the nonpartisan Congressional Budget Office. Medicare Part B has an estimated cost of $6.5 trillion over the next decade. The CBO predicts drug price negotiations alone will save taxpayers about $102 billion through 2031.
HHS can only negotiate prices for the drugs that Medicare Parts B and D spend the most money on and have been on the market for years without any generic or other drug competitors, according to Mulcahy. “The focus is on these older drugs that for one reason or another have no competition,” he said.
There is no official, public list of drugs that HHS intends to target to negotiate. But Bank of America has highlighted some potential Medicare D candidates based on how much Medicare has spent on them in 2020:
- Bristol-Myers‘Eliquis, $9.9 billion. It is an anticoagulant to prevent blood clotting to reduce the risk of stroke.
- JJby Xarelto, $4.7 billion. It is another blood thinner.
- MerckJanuvia of Januvia, $3.8 billion. It is a pill to lower blood sugar for people with type 2 diabetes.
- Abbvieof Imbruvica, $2.9 billion. It is a pill for different types of blood cancer.
And Bank of America sees these Medicare B drugs as possibly affected by the negotiations. Here are their costs to Medicare in 2020:
- Merck’s Keytruda, $3.5 billion. It is an immunotherapy for certain cancers.
- Regeneronof Eylea, $3 billion. It is an injectable drug for macular degeneration.
- Amgenof Prolia, $1.6 billion. It is an injection for osteoporosis.
- Bristol Myers’ Opdivo, $1.5 billion. This is an immunotherapy that treats certain cancers.
- Roche’s Rituxan, $1.3 billion. It is an immunotherapy for certain cancers and inflammatory disorders.
But it is difficult to determine which drugs HHS will actually target. The list of drugs eligible for negotiation will change dramatically by the time the bill’s provisions go into effect as many drugs lose patent protection by that time, according to a study by Bank of America.
However, negotiations through Medicare could offer a 25% discount on the 25 drugs the plan spends the most in 2026 and beyond, according to Bank of America.
Mulcahy says how much the price drops depends on whether HHS really wants to negotiate with the drug companies. Bill Sweeney, head of government affairs at AARP, said proper implementation of the bill was crucial. AARP wants to make sure HHS fights hard for the best rates for seniors and that there are no loopholes that the industry can exploit, Sweeney said.
According to an SVB Securities analyst, the industry can fool the system by allowing limited competition for their drugs to avoid price controls.
HHS will have the power to enforce. Companies face hefty financial penalties for not complying with negotiated prices, $1 million in fines for breaching the terms of the agreement, and $100 million in fines for providing false information .
Inflation discount
While seniors won’t see lower drug prices until 2026, the law will penalize drug companies for raising Medicare drug prices faster than the rate of inflation later this year. If the price of a drug rises above inflation, the company must pay the government the difference between the price charged and the inflation rate for all Medicare sales of the drug, according to AARP.
Prices rise faster than inflation in 2020 for most of the 25 most expensive Medicare Parts B and D drugs, according to the Kaiser Family Foundation.
The United States spent more than $1,000 per capita on prescription drugs in 2019, double the $552 that other high-income countries spent per capita, according to KFF and Peterson Institute on Healthcare. US spending on prescription drugs grew 69% from 2004 to 2019, compared with a 41% increase in comparable countries.
‘Baby steps forward’
Sanders called the bargaining power given to the HHS secretary a “small step forward.” The senator pointed out that the first round of discounts won’t be in effect for four years, and non-Medicare users – the majority of those under 65 – are completely disqualified.
“If someone thinks that because of this bill we are suddenly seeing lower Medicare prices, you are mistaken,” Sanders said in a Senate speech earlier this week. “If you’re under 65, this bill won’t affect you at all and the drug companies will be able to keep having fun and raise prices to whatever level they want.”
On the other hand, the pharmaceutical industry thinks the bill has gone too far. Stephen Ubl, CEO of US Pharmaceutical Research and Manufacturing, said the law would slow innovation and lead to fewer new cures and treatments.
Bank of America doesn’t see the bill as a major negative for industry growth, according to a study from August. Analysts at UBS say the terms of negotiations with Medicare, which are limited in scope, are far from a worst-case scenario for the industry. According to UBS, the legislation will provide clarity to the market and remove the threat of even tougher drug pricing.
“We think the final passage of the current drug price reform represents an event that sheds light on future industry earnings, removing the risk of worse drug prices that have weighed heavily on pricing policy.” biologic drug pricing since the issue of drug pricing first emerged politically in 2015,” UBS analysts wrote in a research note earlier this week.
