Title: Spotlight on Medicare's Drug Negotiation Strategy as 15 New Medications Join the List
Medicare officials revealed the selection of 15 more top-selling prescription medications for price negotiations, as mandated by the Inflation Reduction Act (IRA) and signed into law by President Biden in 2022. The purpose behind this legislation is to decrease medication costs for senior citizens and individuals with disabilities. The 15 drugs under consideration were announced just before President-elect Trump's inauguration, and it remains unclear if the incoming administration will continue or alter the program.
The main objectives of IRA's drug pricing provisions are to reduce Medicare beneficiaries' out-of-pocket costs by negotiating lower prices for certain popular medications and enhancing the outpatient pharmacy benefit, Part D. The newly selected drugs, comprising 5.3 million Medicare beneficiaries, are designed to treat conditions such as cancer, type 2 diabetes, and asthma. Some well-known medications on this list include Ozempic, Wegovy, and Trelegy, which collectively accounted for approximately $41 billion in Medicare's outpatient drug benefit between November 2023 and October 2024.
The terminology "qualifying single source drugs" according to CMS's IRA guidance, groups together drugs with the same active ingredient. As a result, semaglutide-based medications, such as Rybelsus, Ozempic, and Wegovy, were classified as one entity.
The selection of these drugs initiates the commencement of negotiations, which will last about a year. After drug manufacturers consent to agreements with CMS, negotiations between the federal government and pharmaceutical companies start, with an initial ceiling price set by CMS outlines in the IRA statute. Drug companies may refute with evidence, such as comparative clinical benefits, impact on specific populations, and research and development costs, in their counteroffers.
The negotiations on the first ten drugs, held between August 2023 and August 2024, resulted in an estimated maximum fair price decrease of 22% in 2023 for these drugs. However, this might be an overestimate as net savings can't be directly correlated with the negotiated prices due to manufacturer discounts under the newly redesigned Part D pharmacy benefit.
Once these new prices are implemented in 2026, Medicare beneficiaries are expected to save a combined $1.5 billion on out-of-pocket pharmaceutical costs. Additionally, brand-name drug list prices have been rising at a faster rate than general inflation for many years, which can be particularly challenging for some Medicare Part D enrollees who have to pay cost-sharing based on list prices.
The proposal by the Biden administration to allow Medicare coverage of obesity drugs in December 2022 reinterprets the current statute, which could enable drug coverage like Wegovy. However, the actual implementation of this proposal by the incoming Trump administration is uncertain. The nominee for CMS administrator, Mehmet Oz, has expressed support for weight loss drugs, while the potential head of the Department of Health and Human Services, Robert F. Kennedy Jr., has been critical of such drugs.
If the IRA provisions related to drug pricing negotiations are maintained by the next administration, then a system of price controls, referred to as the most favored nation model, could decrease medicine prices in Medicare significantly. This could lead to price reductions below those achieved by the IRA negotiations. Despite ongoing efforts to review and modify various healthcare policies, the current status of the drug price negotiation program under Medicare remains unchanged as per the IRA.
- Under the Inflation Reduction Act signed by President Biden in 2022, Medicare officials are mandated to negotiate drug prices for top-selling medications, such as Ozempic and Wegovy, to reduce costs for senior citizens and individuals with disabilities.
- The Inflation Reduction Act's drug pricing provisions also aim to lower out-of-pocket costs for Medicare beneficiaries by negotiating fair prices for popular medications, including those used to treat conditions like cancer and type 2 diabetes.
- The Trump administration's stance on continuing or altering the program, which started just before his inauguration, remains unclear, potentially impacting the price negotiations for medications like Trelegy and Rybelsus.
- If the Trump administration were to maintain the Inflation Reduction Act's drug pricing provisions, it could lead to further price reductions below those achieved by the current negotiations, potentially saving Medicare beneficiaries more on their out-of-pocket pharmaceutical costs.
