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Medicare Moves Forward on Drug Price Negotiations – but oh so slowly

Well, it seems hard to believe that I taped today’s video in September shortly after the announcement that the federal government had selected the first 10 drugs for which Medicare would negotiate prices. To recap, when the legislation that created Medicare’s outpatient drug benefit, Medicare Part D, was passed in 2003, a compromise in exchange for support from the drug industry was a provision that what Medicare paid for drugs could not be directly negotiated with drug manufacturers.

The recent passage of the Inflation Reduction Act set forth a different direction so that Medicare drug prices can be subject to negotiation. It is important to remember, however, that savings won’t be realized until 2026 at the earliest and that the legislation is intended to primarily save the government money, not consumers. Of course, a reduction in prices should be accompanied by a reduction in member responsibility and one hopes that government savings ultimately result in taxpayer savings but more to follow.

Also, of note, early on six drug manufacturers, the Chamber of Commerce and the manufacturers trade association filed suit to ultimately prevent the legislation from being fully implemented. Since then a seventh drug manufacturer also filed suit. At this point, both negotiations and litigation are proceeding. You have likely seen the list of the first 10 drugs to be negotiated:

drug participating manugacturer

The reaction from the pharmaceutical industry is predictable and familiar. Research will suffer, people will die and new drugs will not be developed. In fact, one Wall Street Journal op-ed piece referred to a University of Chicago study which projected that due to this legislation, by 2039, 135 fewer drugs will not have been developed. That level of precision seems rather absurd but passions are high. Of course, it is possible that the legislation is flawed. Plaintiffs contend that being forced to negotiate or having to pay an excise tax or be barred from supplying drugs to Medicare and/or Medicaid is essentially a seizure of private property.

We don’t have the legal expertise to comment on the merits of the litigation but have always found it of interest that as a society we generally accept that physicians and other providers settle for remarkably low reimbursement from both Medicare and Medicaid. And there doesn’t seem to be much negotiation surrounding this reality. But, I digress. Back to drug-price negotiations.

The process that is going to play out is important to track but it is probably more important to remember that consumer relief is coming sooner due to Part D having an out-of-pocket maximum for the first time in 2024. From 2006 when Part D began through 2023, there has been no out-of-pocket maximum for outpatient drugs. One reached catastrophic by spending a certain amount out-of-pocket, this year, $7,400, and then copayments were reduced to roughly 5% for the rest of the year. However, five percent of an expensive drug could still be costly.

In 2024, there is a true out-of-pocket maximum of $8,000. Those on expensive drugs should not have to spend quite that much due to the combination of discounts and rebates in the coverage gap phase of the benefit. In 2025, as we’ve described before, the Inflation Reduction Act reduces the out-of-pocket maximum to $2,000 per year. This is quite a dramatic change so the annual enrollment season next fall could be quite tumultuous.

Medicare price negotiations should theoretically provide a source of funds for such a low out-of-pocket maximum but, again, it’s going to be a long, tough process. We’ll work to keep you updated when there is more to share. Thanks.