Medicare & Big Pharma: After 20 Years, They’re Negotiating!

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Ever since the passage of the Medicare Prescription Drug Act of 2003, which created the Medicare Part D program, the costs of non-generic drugs under the Medicare system have sky-rocketed, creating immense financial burdens for seniors who often have to choose between buying food or buying medicine. The reason for this is that the Drug Act prohibited Medicare from negotiating the cost of drug prices directly with pharmaceutical companies. Medicare negotiates a lot of different services that it covers, and through large-volume discounts is able to obtain significantly lower pricing for its members. Sort of like the way Costco works. So, the logical question has always been: why not allow Medicare to apply their power of volume discount to the prescription drug program? The answer is: pressure from the pharmaceutical industry, which wants to recoup as much profit as possible for their investors in a sector that inherently has a high risk for losses as well as significant research and development costs.

After 20 years of relentless pressure from the public and from senior advocacy groups such as AARP, and in spite of intense lobbying and pushback from the pharmaceutical industry, a breakthrough occurred through the passage of the Inflation Reduction Act of 2022. Among other things, this legislation will allow Medicare to engage in direct negotiations with pharmaceutical companies to set a “fair market price” for a total of 100 medications—50 prescription drugs covered by Medicare Part D, and 50 drugs covered by Medicare Part B. (Part B medications are medications that are dispensed at a doctor’s office and Part D medications are purchased at a local pharmacy for home use.)

In the first two years of the program, 2023 and 2024, only Part D drugs will be selected for negotiations; Part B drugs are not eligible for negotiation until 2026. The non-partisan Congressional Budget Office has estimated that the negotiations provision of the new law will save Medicare $98.5 billion over a 10-year period.

In August 2023, the Biden administration unveiled a long-awaited list of the initial 10 medications that will be subject to price negotiations. These medications, which treat diabetes, cancer, AFIB, and other conditions, are taken by millions of older Americans and cost Medicare billions of dollars annually. Medicare selected the drugs through a process that prioritized ones that account for the highest Medicare spending, have been on the market for years, do not face competition from rivals, and are commonly used.

The initial 10 prescription drugs selected for price negotiations are:

  1. Eliquis (prevention of strokes and blood clots)
  2. Jardiance (diabetes and heart failure)
  3. Xarelto (prevention of strokes and blood clots)
  4. Januvia (diabetes)
  5. Farxiga (diabetes, heart failure, and chronic kidney disease)
  6. Entresto (heart failure)
  7. Enbrel (arthritis and other autoimmune conditions)
  8. Imbruvica (blood cancers)
  9. Stelara (Crohn’s disease)
  10. Fiasp and NovoLog (insulin products for diabetes)

The 10 selected medications range from very expensive drugs taken by relatively few older Americans to cheaper drugs taken by huge numbers of people. The blood cancer drug Imbruvica, which in a recent 12-month period was taken by 20,000 Medicare beneficiaries, has a sticker price of $17,000 a month. The blood thinner Eliquis, which was taken by 3.7 million beneficiaries, has a monthly sticker price of $600. Medicare enrollees taking these 10 drugs paid a total of $3.4 billion in out-of-pocket costs in 2022 for these medications, while Medicare spent nearly $50 billion to purchase them.

Now that the list of drugs is public, their manufacturers have until October 1 to declare whether they will participate in negotiations with the government. Companies that decline to negotiate must either pay a large excise tax or withdraw all of their products from both Medicare and Medicaid. Polling by health research organizations has found broad, bipartisan public support for allowing Medicare to negotiate drug prices. In a recent survey, 89 percent of Democrats and 77 percent of Republicans said they favored the direct negotiations.

The fair prices set for the first 10 prescription drugs selected will not go into effect until 2026. This is the first year that Medicare beneficiaries will see the benefits from Medicare’s direct price negotiations with drug companies. However, other provisions of the Inflation Reduction Act will kick in sooner.

  • In January 2023, for example, Medicare beneficiaries who take insulin will not pay more than $35/month for each insulin that they take, and the Part D deductible will not apply to insulin.
  • Starting in January 2023, adult vaccines recommended by the Advisory Committee on Immunization Practices, including the shingles vaccine, will be available to people with Medicare Part D at no cost to them.
  • Also in 2023, drug manufacturers will be required to pay rebates to Medicare if prices for certain Part B drugs increase faster than the rate of inflation.
  • Starting in January 2024, people with Part D drug coverage who fall into the catastrophic stage of the Medicare drug “coverage gap” or “donut hole” won’t have to pay any coinsurance or co-payments during that phase for covered Medicare prescription drugs.
  • Also in 2024, the new law provides for a mechanism whereby the average premium increase across most Part D plans will be limited to 6 percent over the previous year. This protection continues through 2029. The law also provides for a mechanism to stabilize plan premiums in 2030 and subsequent years.
  • Starting in 2024, individuals with Part D who have low incomes will benefit from expanded financial help with prescription drug cost-sharing and premiums. The low-income subsidy program (LIS or “Extra Help”) under Medicare Part D will be expanded to include people on Medicare with limited resources and who earn less than 150 percent of the federal poverty level. This is a change from previous years, where eligibility for LIS was limited to those who earned less than 135 percent of the FPL.
  • In 2025, Medicare beneficiaries won’t pay more than $2,000 out-of-pocket for prescription drugs annually and will have the option to pay these costs in monthly amounts spread over the year.

In short, all of these changes amount to a long overdue and much needed overhaul of the Medicare Part D prescription drug program. The pharmaceutical industry has lobbied hard against this legislation, arguing that they need to recoup the high cost and risk of research and development by charging higher prices for their drugs. While the pharmaceutical companies have filed several lawsuits and ongoing legal battles continue in the U.S. court system, Medicare is forging ahead with the implementation of these long anticipated and hard-fought enhancements to the Medicare drug program.

Nikki Weaver is a licensed health insurance agent, specializing in Medicare. She is the President of Heartland Insurance Solutions of SE Iowa, based in Fairfield, IA.