Medicare to negotiate with drug companies
Move expected to save $10B over next decade
The Centers for Medicare and Medicaid Services is gearing up for a new federally funded program expected to save billions of dollars in drug costs for over 49 million Americans.
The Inflation Reduction Act, passed by Congress and signed by President Joe Biden last year, allows the Medicare and Medicaid centers to negotiate prices with drug manufacturers for some members. The move is expected to save Medicaid $10 billion over the next decade, with savings first appearing in fiscal year 2026 and growing year over year, according to an August report from the Congressional Budget Office.
“The law will make improvements to Medicare that will expand benefits, lower drug costs, keep Part D premiums stable, and in the long-term improve sustainability of the program,” a statement from the centers said. Medicare Part B covers medical care while Part D covers most prescription drugs.
The centers said they are in the process of hiring over 100 positions for the Medicare Drug Rebate and Negotiations Group that will include a variety of data and regulatory analysts, economists, managers and those with experience in pharmaceuticals. The staff will work in divisions focusing on rebate agreements and price negotiations, policy, manufacturer data and compliance and more, according to the centers.
“CMS is currently meeting with individual drug companies as well as trade associations to gather feedback and input during the implementation process,” the statement said.
At first, the centers will negotiate for only 10 Part D drugs that are among the most expensive because there will be no generic or similar alternatives available by 2026. The announcement for which drugs will be picked is expected Sept. 1.
The number of drugs in price negotiations will grow in subsequent years. In 2027, Medicare
will negotiate for 15 Part D drugs. In 2028, they will negotiate for 15 drugs in either Part B or Part D, and then 20 Part B or Part D drugs each year after that, according to the centers.
“This means people with Medicare will pay a fair price for negotiated drugs, and their cost-sharing will be based on the Medicare negotiated price,” the centers said in a statement. “In addition, if drug companies raise their drug prices at a rate faster than the rate of inflation, they must pay Medicare a rebate.”
Sen. Tim Kaine, speaking after an August town hall about health care in Hampton, told The Virginian-Pilot that Veterans Affairs has been negotiating prices for drugs since the Part D program went into effect in 2006, but Medicare has never negotiated drug prices.
Rep. Bobby Scott, D-Newport News, speaking after the same town hall, said Medicare Part D originally was meant to include drug price negotiations, but to get enough votes to pass the law, they had to take that out.
Sen. Chuck Grassley, R-Iowa, in 2019 explained why Republicans were against Medicare price negotiating, according to the United States Senate Committee on Finance website. Grassley said competition, not government mandates, must be allowed to “drive innovation, curb costs, expand coverage and improve outcomes.”
“It wouldn’t work if the federal government interfered with the delivery of medicine and dictated which drugs would and would not be covered,” he said. “That’s why we wrote a noninterference clause in the law.”
In February 2017, a spokesperson for the White House said then-President Donald Trump was in favor of having Medicare negotiate drug prices to save money, according to Politico.
In late September, four Republican senators submitted a bill to block Medicare from going forward with price negotiations, according to Congress.gov.
“Price controls never work,” said bill sponsor Mike Lee of Utah. “Instead, they exacerbate the problems they seek to resolve. Mandating fixed prescription drug prices will ultimately result in the shortening of American lives. Instead of repeating past mistakes, it’s time we address what’s driving the cost of prescription medications and adopt a regulatory environment that works to everyone’s advantage.”
Scott and Kaine also noted that the Inflation Reduction Act will limit the out-ofpocket drug costs for Medicare members at $2,000 a year. That will go into effect in 2025. Kaine said the ability for the centers to negotiate prices will also help those who aren’t spending that much annually.
The Robert Wood Johnson Foundation, a nonprofit that focuses on health care issues, estimated that the cost of capping out-ofpocket drug expenses will be less than 1% of Medicare spending. But as a result of the cap, the foundation expects that more than 860,000 Medicare members not eligible for cost-sharing protection will save over $900 annually on average.