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Will Medicare Start Negotiating Drug Prices? Yes – but We Won’t See Major Changes Any Time Soon

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There’s good news and bad news in Medicare’s war against high prescription drug prices. The good news is that a new law passed last year finally gives the mammoth Medicare program the legal right and authority to negotiate prescription drug prices with manufacturers. The bad news: the soonest that beneficiaries will see any tangible results is in January of 2026. That may feel like a long time to wait for something that seems like common sense, but in the world of Washington, D.C., at least it’s a start.

In order to revisit the standoff between Medicare and Big Pharma, we’re taking a look at this recent article from USA Today in which reporter Ken Alltucker unveils the government’s new timelines for a gradual roll-out of Medicare’s new negotiating clout. It seems only logical to us, in a world where buying power normally brings lower prices, that Medicare with more than 61 million beneficiaries should have had the power long ago to use their sheer size to negotiate a better deal for those who take prescription drugs. This article lets us know what to expect.

First Comes the Drug Selection Process

According to USA Today, the Biden administration last week took the wraps off a plan and timeline, explained in this CMS document, that will finally let Medicare engage in drug price negotiations with pharmaceutical manufacturers. 

“The Inflation Reduction Act, passed by Congress last year, grants the federal health program that serves older adults and disabled people the authority to negotiate drug prices,” Alltucker writes. “The federal agency will select the first 10 drugs to negotiate later this year but price changes won’t begin until 2026.” The article explains that Medicare plans to “solicit feedback from the public, consumer advocates, drug manufacturers and others” as it selects the first round of drugs to be negotiated.

The goal is simple. The government seeks to “ensure that people with Medicare pay fair prices for some of the costliest medications,” according to Chiquita Brooks-LaSure, CMS administrator.

Beneficiaries Will Have to Be Patient

The timeline seems extremely drawn out, even by Washington standards. Here’s how USA Today explains it.

  • By September 1, 2023, Medicare will announce its first list of 10 retail drugs whose maximum allowed prices will be subject to negotiation.
  • Then during 2024, CMS will bargain with drug manufacturers, eventually publishing a list of prices (due by September 2024) that will take effect January 1, 2026.
  • “Over the following two years,” writes Alltucker, “the federal health program will target another 30 retail and physician-administered drugs.”
  • Eventually, starting in 2029, the program will be in full swing, allowing Medicare to negotiate prices on up to 20 drugs each year. 

There are some restrictions, says the article. “Retail drugs are eligible [for negotiation] only after they have been on the market for nine years without a competing generic version,” Alltucker writes.  “Physician-administered drugs will have 13 years before being subject to negotiation.”

The First Benefits: A Cap on Insulin Prices, Plus No-Cost Vaccines

Even though the timeline stretches over the next six years or so, there are already some immediate benefits of the new law. “Starting in January,” Alltucker writes, “the federal law capped Medicare recipients’ out-of-pocket costs at $35 for a one-month supply of insulin. That represents a significant savings for nearly 1 in 4 Medicare recipients who paid more than $70 each month in 2019.” (Those patients covered by private insurance plans won’t see the benefits of the price cap. Neither will those without health insurance.)

On the vaccine front, there’s also immediate good news. “Medicare recipients with prescription drug coverage are eligible for free, recommended vaccines such as Tdap and shingles,” says USA Today. “In 2020, 3.6 million Medicare recipients received the shingles vaccine, with the average price being $213, according to GoodRx.”

Big Pharma Companies and Rampant Price Hikes

Although real price negotiations won’t take place until next year, there are some price controls built into the new law, says the article. Those companies that increase prices above inflation levels must pay rebates to Medicare, for example, a law that applies in 2023 to all price hikes on retail and physician-administered drugs. 

These controls are designed to curb run-away costs, Alltucker infers. “Biden administration officials said U.S. prescription drug prices are more than double prices in other high-income countries,” he writes. “From July 2021 to July 2022, pharma companies hiked prices an average of 31.6 percent on more than 1,200 prescription drugs, according to a U.S. Department of Health and Human Services report.”

The article also quotes a Kaiser Family Foundation analysis published last August which reported that “half of all drugs covered by the federal health program for older adults and disabled residents had price increases above the rate of inflation in 2020.” It’s almost as if these manufacturers saw the new law coming. 

The Downside: Higher Prices for Non-Medicare Patients 

Some industry observers fear that Medicare’s new negotiating clout could drive drug prices up for other, younger patients. “Experts say the Medicare drug negotiations will do little to help most Americans who get coverage through an employer, purchase plans on their own or are uninsured,” says the article. “Major drug companies likely seek to maintain high list prices as they contend with inflation and rising materials and supply chain costs.”

Many variables affect the actual amount a consumer ultimately pays for a prescription, including not only their coverage but also a system of complex drug rebates common within the industry. One industry expert told USA Today that “the [drug pricing] system is all reliant on reimbursement metrics and rebates, and that’s where the problem is.”  

The practical application of this complex situation is simple. It’s like squeezing the air in a balloon: compress the balloon in one spot and it expands somewhere else. “While Medicare and its recipients could benefit from lower-priced drugs and monthly caps on insulin costs,” Alltucker warns, “drug manufacturers might seek to shift costs to other populations.”

Speaking with USA Today, healthcare researcher Antonio Ciaccia put it simply. “When somebody gets the best price, everyone else is getting a worse price,”  Ciaccia said. “Drug pricing is a tale of have and have nots. When Medicare becomes more of a have, the question is who becomes more of a have not?”

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