Over the past several decades, spending on prescription drugs has increased rapidly, growing from $90 per person on average in 1960 to $1,025 per person in 2017. More than 60 percent of U.S. adults currently take at least one prescription drug, and around 30 percent of those adults have difficulty affording their medicine—especially low-income people and those who take multiple medications. These burdens aren’t equally felt, either; a poll by the Kaiser Family Foundation found that Black and Hispanic adults were more likely to report struggling to afford prescription drugs than white adults.
These struggles are driven by higher list prices for prescription drugs: a 2021 report by the Government Accountability Office found that the U.S. list prices were between two and four times higher than the prices for the same drugs in Australia, Canada, and France. In order to address this problem, Congress empowered Medicare to negotiate the prices for a subset of prescription drugs as part of the Inflation Reduction Act, signed on August 16, 2022. While drug companies and other interest groups have filed lawsuits against this process, legal experts at Georgetown University’s O’Neill Institute for National and Global Health Law have argued that these claims hold little merit.
Under the Inflation Reduction Act, the Centers for Medicare and Medicaid Services (CMS) are required to negotiate the price of ten of the fifty drugs with the highest Part D (Medicare’s retail prescription drug benefit) spending from June 1, 2022 to May 31, 2023. The drugs selected 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 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.
On August 29, 2023, CMS announced the list of drugs to be included in the first round of drug price negotiations. This brief highlights how these selected drugs will benefit seniors of color. After this, it discusses several ways that the federal drug price negotiation program could be expanded to benefit more patients and how state governments can use these prices to lower their prescription drug spending.
Medicare negotiations will lower the price of prescription drugs
On Tuesday, August 29, 2023, CMS announced the first ten drugs whose prices will be negotiated with pharmaceutical companies. Table 1 shows the drugs selected, the conditions these drugs treat, and the potential savings that a fair price could achieve for the Medicare program.
INITIALLY SELECTED PRESCRIPTION DRUGS FOR MEDICARE NEGOTIATION
|Total Part D Spending June 2022 to May 2023
|Number of Patients Treated
|Diabetes; heart failure
|Farxiga (dapagliflozin propanediol)
|Diabetes; heart failure; chronic kidney disease
|Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill (insulin aspart)
Source: Author analysis of public available data from the Centers for Medicare and Medicaid Services.
The Congressional Budget Office estimated that allowing Medicare to negotiate drug prices would save nearly $100 billion over a decade, including more than $3.7 billion in 2026, the first year these new prices go into effect. The Department of Health and Human Services (HHS) estimated that around 9 million Medicare enrollees took at least one of these drugs in 2022, spending around $3.4 billion out of pocket.
Lowering prices for some of the drugs selected will have an outside impact on health equity by addressing racial disparities in access to needed medications. For example, American Indians/Alaska Natives, Black people, and Hispanic people are disproportionately likely to have diabetes, and four of the ten drugs selected are used to treat diabetes. This, combined with the Inflation Reduction Act’s cap of $35 per month in out-of-pocket costs for insulin, will significantly expand access to needed diabetes drugs.
HHS also estimated that Black enrollees were disproportionately likely to use several of the drugs selected. Even for drugs used relatively evenly across the Medicare program, the process of negotiations will likely benefit seniors of color more: a 2022 report by HHS found that Black and Latino Medicare enrollees were 1.5 and 2 times more likely, respectively, than white Medicare enrollees to report difficulty affording drugs.
Expanding the scope of drug price negotiation is essential to achieving health equity
In order to maximize the impact of lowering prescription drug prices, however, the use of price negotiation should be expanded. Due to procedural issues with how the Inflation Reduction Act was passed, the prices Medicare negotiates for these drugs are only available to Medicare enrollees. This limits the impact of drug price negotiations in two ways. First, only around 53 million people are enrolled in Medicare Part D plans—most people receive coverage through an employer, as shown in Figure 1. Second, Medicare enrollees are disproportionately likely to be white compared to the overall population, as shown in Figure 2, which has implications for equity.
To truly advance health equity, the use of price negotiations should be expanded beyond just the Medicare population, as well as empowered to include more prescription drugs. There are several ways Congress can expand price negotiations to enable more patients to benefit.
First, Congress should give CMS the authority to negotiate the Medicare prices for a larger number of drugs and shorten the waiting period before drugs are eligible for negotiation. President Biden’s proposed 2024 budget is a strong guideline for how to do so: as proposed, the budget would have enabled CMS to negotiate twenty drugs for 2026, rather than the ten proposed on August 29. Similarly, the budget proposal cut down the waiting period to five years for both small-molecule drugs and biologics, rather than nine for small-molecule drugs and thirteen for biologics.
The practices included in the proposed 2024 budget would bring the United States in line with other industrialized nations that negotiate drug prices, who typically do not have such long waiting periods. As a general point, negotiating drugs sooner is essential to addressing the highest cost drugs: the median list price for a new drug first offered in 2022 was more than $220,000. Allowing new drugs’ prices to go unchecked will only limit their benefit to patients, as the insurers that operate Part D plans may not even include them on a formulary if their price is too high.
In addition to expanding the number of drugs CMS can negotiate for Medicare enrollees, Congress should enable CMS to negotiate for other populations as well, and based on other factors. The drugs that cost Medicare the most money are not necessarily the drugs that most U.S. patients struggle to afford, by virtue of the different populations that Medicare serves. Giving CMS authority to negotiate prescription drug prices outside of those driving Medicare spending would reduce medical costs for millions more Americans.
Finally, Congress should empower CMS to negotiate the price for any drug that came to market through the accelerated approval pathway. These drugs are approved based on what is known as surrogate endpoints—that is, a drug’s ability to do something like reduce the presence of harmful things such as neuron plaques, rather than any direct measure of patient health. Including drugs approved based on these endpoints without follow-up studies to confirm an actual benefit to patients will both incentivize drug companies to conduct these later studies and ensure that patients are not paying exorbitant prices for minimal benefit in the meantime.
Until the use of price negotiations is expanded, however, state governments and other payers should work to include the prices that Medicare negotiates in their own systems. For example, state employee health benefit programs should use these negotiated prices as a baseline for reference pricing—essentially, an upper limit on what they will pay for a given drug or service. While this will likely not be as effective as Congressional expansion of these prices, it does represent an effective way for states to use these prices in the meantime.
The first round of Medicare negotiations is a start toward affordable prescription drugs for everyone
The announcement of the first ten drugs for Medicare negotiation is the start of a historic win for patients against the market power of the pharmaceutical industry. The lower prices achieved through this program will likely make lifesaving medicines more affordable for millions of seniors, but these lower costs won’t be available to everyone. To better promote health equity, Congress should expand who can access these new prices and empower CMS to negotiate the prices of more drugs, more quickly.