The Biden administration announced on August 16, 2024, the price reductions for the first ten drugs it negotiated with pharmaceutical companies from their Medicare prices.
The provisions that authorized these negotiations were part of the Inflation Reduction Act, which took effect in 2022. However, the lower prices are not scheduled to take effect until 2026.
The drugs are purchased through Medicare Part D, a drug insurance program for Americans ages 65 and older. The 10 drugs were taken by 9 million patients with Medicare insurance in 2023 and accounted for $56.2 billion of total Medicare spending. Had the negotiated prices been in effect that year, the government estimates Medicare would have saved about $6 billion.
To put that in perspective, total annual prescription drug spending in the United States exceeds $405 billion, and Part D alone costs more than $215 billion.
As a scholar who studies the politics of health care policy, I remain skeptical that the negotiations will have a significant impact on the U.S. health care system in the foreseeable future, even if the law survives ongoing legal and implementation challenges.
At the same time, I expect that many older people will see significant savings in their out-of-pocket spending on prescription drugs in the coming years. However, this will be primarily due to other provisions of the Inflation Reduction Act.
Reducing drug costs for Medicare beneficiaries
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 drugs like Imbruvica and Januvia.
Democrats have hailed these drug pricing regulations as a game-changer, and Vice President Kamala Harris, who is currently running for president, is making efforts to rein in drug prices part of her campaign.
Former President Donald Trump, however, has been relatively quiet on the issue. Opinion polls show that the population overwhelmingly supports this policy.
Medicare will soon begin negotiating prices for more drugs, including 30 drugs over the next two years.
If the policy moves forward as planned, the drug price negotiation rule is expected to save the U.S. government approximately $98.5 billion by 2031.
The Biden administration hopes to pass some of those cost savings on to Americans ages 65 and older by lowering Medicare Part D premiums and reducing deductibles. The White House also hopes to reduce the budget deficit by $237 billion.
Other important benefits for older adults
While negotiations over drug prices under Medicare have received most of the attention, the Inflation Reduction Act also contains other provisions that may be even more beneficial to older people.
These include limiting seniors’ out-of-pocket costs for prescription drugs to no more than $2,000 per year through 2025, limiting increases in Medicare Part D premiums, providing rebates when price increases for certain drugs outpace inflation, eliminating co-payments for vaccines, and providing premium subsidies for low-income earners age 65 and older.
Marko Geber/DigitalVision via Getty Images
Strong resistance from industry, but companies negotiated
Despite their vocal opposition and their ongoing PR campaign attacking this process, all affected U.S. pharmaceutical companies decided to participate in the price negotiations.
The devastating alternatives for the companies – including paying a fine that could amount to up to 95 percent of their U.S. drug sales and being required to remove their drugs from the Medicare and Medicaid markets – proved to be powerful incentives.
However, drug manufacturers are fighting this measure in court. And although there have been several defeats, this fight will probably continue for the foreseeable future, with an uncertain outcome.
Why drug prices are so high in the US
Americans pay significantly more for prescription drugs than people in countries with similar economies. For example, per capita spending on drugs in the United States in 2022 was $1,432, in Germany $1,042, and in France $766.
The reasons for this inequality are complex and include the overall complexity of the U.S. health care system and the lack of transparency in the drug supply chain. Of course, many other countries also directly set drug prices or use their monopoly over health care services to drive down costs.
Drug costs are a major burden for Americans. People over 65 are particularly affected. One in five people do not take all of their medications as prescribed due to the high costs.
Maskot/Getty Images
Weighing up the prospects for price negotiations
In my view, the administration’s efforts are a step in the right direction. The potential for real savings for Americans ages 65 and older will undoubtedly increase as more drug prices are negotiated.
Nevertheless, some legitimate concerns remain.
Even if the negotiated lower prices withstand legal challenges from the industry, it is possible that future Republican administrations will not adopt this policy because Republicans have historically opposed price negotiations under Medicare.
The actual impact on Medicare patients may be much smaller than it appears, because the Medicare program and patients already receive discounts on many of these drugs. These discounts will now be eliminated.
In addition, the pharmaceutical industry has a history of cleverly exploiting loopholes that could limit the financial impact even further. Manufacturers have already told shareholders that they expect little impact on their profits.
It’s also too early to say whether this will be a win for all Americans. It’s possible that Americans who aren’t covered by Medicare could face rising prices, even for the same drugs. So working Americans could end up bearing an ever-increasing burden to provide this support for older adults.
This article contains passages that were included in an earlier article dated August 30, 2023.
