How Medicare Drug Negotiations Will Benefit Patients

Prescription drug prices in the United States are higher than those in other industrialized nations. The U.S. Government Accountability Office found in 2021 that U.S. prices for prescription drugs were between two and four times higher than those in Australia, Canada, and France, and the RAND Corporation found a similar result in a different study published that same year. These high prices often mean that patients struggle to afford their prescribed medicine: a 2022 survey by the Kaiser Family Foundation found that nearly 30 percent of U.S. adults reported not taking their medicine as prescribed in the past twelve months due to cost, including by rationing their doses or not filling a prescription at all (see Figure 1).

Figure 1

This burden of unaffordability is not equally felt, either. Uninsured patients were 2.5 times as likely as privately insured patients to delay filling a prescription due to cost in 2021. Similarly, a 2022 report by the U.S. Department of Health and Human Services found that Black and Latino Medicare enrollees were 1.9 and 2 times more likely, respectively, than white enrollees to not fill a needed prescription due to cost. The same report found that women were less likely to fill a needed prescription due to cost than men. Luckily, Congress has recently taken action to help address this issue.

Black and Latino Medicare enrollees were 1.9 and 2 times more likely, respectively, than white enrollees to not fill a needed prescription due to cost.

Under the Inflation Reduction Act (IRA), Medicare is authorized to negotiate prices for a limited set of prescription drugs, and the law includes a variety of other drug price provisions. The Centers for Medicare and Medicaid Services (CMS) announced the timeline for the first round of this process in a recent press release. This commentary describes the requirements and restrictions for the negotiation process. After this, it provides a list of potential drugs to be included in the first round. It ends by calling on Congress to expand the negotiated prices and other pricing provisions of the IRA to all patients.

How Will Medicare Negotiations Work?

Since Medicare Part D—the program’s retail drug benefit—was created, the federal government has been statutorily prohibited from “[interfering] with the negotiations between drug manufacturers and pharmacies and [prescription drug plan] sponsors” or “[requiring] a particular formulary or institute a price structure for the reimbursement of covered part D drugs.” The IRA partially lifted this exemption, requiring Medicare to negotiate for ten of the fifty drugs with the highest total Part D spending from June 1, 2022 to May 31, 2023. More drugs for both Part D and Part B—Medicare’s outpatient medical benefit, which covers drugs administered by providers—will be added over time, and these prices will go into effect for Part D starting in 2026. These prices are only available to Medicare patients.

The Inflation Reduction Act included specific restrictions on which drugs are eligible for negotiation, in addition to requirements for how many drugs for which the U.S. Department of Health and Human Services must negotiate prices. The list must be pulled from the fifty drugs with the highest total spending for Part D or B, and an individual drug cannot:

• have a generic or biosimilar available;
• be less than nine years (for small-molecule drugs) or thirteen years (for biologics) from their FDA approval or licensure date;
• account for 1 percent or less of total spending for Part D or B or 80 percent or more of spending on a manufacturer’s drugs;
• have less than $200 million in total spending in 2021;
• have an orphan designation—essentially, be a drug to treat a rare disease or condition—as its only approved indication; or
• be a plasma-derived product.

The table below shows a potential list of Part D drugs that could be included in the first round of Medicare negotiations based on current spending.¹ CMS has final discretion in which of the fifty drugs with the highest spending to pick, and the list will be based on spending from 2022–23, which is not currently publicly available.

Table 1

More Is Needed to Make Drugs Affordable for Everyone

Giving Medicare the ability to negotiate with drug companies over prices is a monumental win for Medicare patients and the federal government. As shown above, the drugs eligible for negotiation under this process are common drugs used to treat a variety of health conditions, including cancer, diabetes, and respiratory illnesses, all of which are more common among, or more likely to be deadly for, marginalized communities. Even moderate reductions in price will result in significant savings, given how common these drugs are—which means more people will be able to take advantage of these indispensable treatments.

Congress should build on the foundation of the Inflation Reduction Act and make the prices that Medicare negotiates available to every patient, including uninsured patients.

Unfortunately, the progress made by the Inflation Reduction Act—negotiated drug prices and restrictions on pharmaceutical companies raising prices faster than inflation—only applies to the Medicare program. While this historic win will help seniors, disabled people, and others eligible for Medicare, less than 15 percent of the country has coverage through Medicare. Medicare enrollees are also disproportionately likely to be white, while people of color—especially Hispanic and American Indians and Alaska Natives—are more likely to be uninsured. To continue to make progress on this critical issue and improve health equity, Congress should build on the foundation of the Inflation Reduction Act and make the prices that Medicare negotiates available to every patient, including uninsured patients.

1. To determine the drugs eligible for the first round of negotiation, the author used the Medicare Part D Drug Spending dashboard for 2020 to find the fifty drugs with the most spending in 2020, as well as the number of Medicare beneficiaries using those drugs and average spending. After this, he used the Food and Drug Administration Orphan Drug Product designation database to determine which of these drugs were orphan drugs. Finally, he used the Drugs@FDA tool to determine the number of manufacturers, non-orphan indications, approval dates, and blood or plasma status for the drugs.

Tags: health care, medicare, health equity