Medicare is poised to change the prices of some of its most expensive drugs through a historic expansion of its power which could reduce costs for many seniors as well as federal spending on its prescription drug plan
The spending and tax bill includes $433 billion in investments in health-care and clean energy. The Inflation Reduction Act was passed by a vote of 220 to 207 in the House of Representatives on Friday.
The bill gives the Health and Human Services Secretary the power to negotiate prices for certain drugs and punish pharmaceutical companies that don't play by the rules. The legislation will cap out-of-pocket costs at $2,000 for people who participate in Medicare Part D.
Democrats have been trying to give Medicare the power to negotiate with drug companies. The pharmaceutical lobby and Republican opposition shot down previous attempts. The HHS can't negotiate prices with the industry.
The power to negotiate is up for grabs. The bill is expected to be signed by the president.
38 million people are members of the American Association of Retired Persons. The group has been fighting for years to allow Medicare to negotiate drug prices. It is one step closer to real relief from out-of-control prescription drug prices for millions of older adults.
Andrew Mulcahy, an expert on prescription drug prices at the RAND Corporation, said that the negotiation provisions are very narrow. When the prices of ten of the program's most expensive drugs are re-negotiated, there will be no relief.
The legislation left out the majority of Americans who aren't on Medicare. Even the limited scope of the bill is not enough for the pharmaceutical industry.
Some of the most expensive drugs covered under Medicare Part B and Medicare Part D can be negotiated by the HHS.
The program is phased in over time. It works this way.
The number of seniors who will benefit from the negotiations depends on which drugs the HHS secretary targets. More than 63 million Americans are insured through Medicare, and nearly 50 million are in Medicare Part D.
According to the Congressional Budget Office, Medicare Part D was estimated to cost just over $1.6 trillion over the next 10 years. Over the next 10 years, Medicare Part B is expected to cost $6.5 trillion. Drug price negotiations will save taxpayers $102 billion through 2031.
The HHS only has the power to negotiate prices for drugs that Medicare Parts B and D spend the most money on and have been on the market for years without any competitors. He said that the focus is on drugs that don't have competition.
There is no publicly available list of drugs that HHS wants to target. Some potential Medicare D candidates were highlighted by Bank of America.
The Medicare B drugs may be impacted by negotiations, according to Bank of America. Their costs to Medicare in 2020 are listed here.
It is hard to know which drugs HHS will target. According to a Bank of America research note, the list of drugs that would qualify for negotiations will change a lot by the time the bill goes into effect.
According to Bank of America, negotiations through Medicare could cut prices by 25% for the 25 drugs the program spends the most on in the next ten years.
The amount of price reductions depends on whether HHS leans into negotiations with the drug companies. Proper implementation of the bill is important according to Bill Sweeney. HHS fights hard for the best price for seniors and there aren't loopholes the industry can exploit.
The analyst note stated that the industry could game the system by allowing limited competition for their drugs.
The HHS will have authority. Penalties for violating agreement terms can be as high as $1 million and for giving false information can be as high as $100 million.
Although seniors won't see the lower prices until 2026, the legislation would penalize drug companies for raising Medicare drug prices faster than inflation. The company must pay the government the difference between the price charged and the inflation rate for all Medicare sales of drugs if they increase more than inflation.
According to the Kaiser Family Foundation, prices rose faster than inflation in 2020 for the majority of the drugs Medicare Parts B and D spent.
The U.S. spent more than $1,000 per capita on prescription drugs in 2019. Spending on prescription drugs in the U.S. increased by more than double that of comparable countries.
The negotiation power given to the HHS secretary is a small step forward. The majority of people under the age of 65 are left out of the first round of price reductions because they aren't on Medicare.
If anyone thinks that the bill will lead to lower prices for Medicare, they are wrong, according to the senator. If you are under 65, the bill won't affect you and the drug companies will be able to raise prices as they please.
The pharmaceutical industry is against the bill. Stephen Ubl is the CEO of the Pharmaceutical Research and Manufacturers of America.
According to a research note from August, Bank of America doesn't think the bill will hurt growth. The Medicare negotiation provisions are not the worst case scenario for industry according to analysts. The legislation would give clarity to the market and take the threat of harsher drug pricing off the table.
The ultimate passage of the current drug pricing reforms is believed to be a clarifying event in terms of future industry earnings, removing the risk of more burdensome drug pricing that has weighed on biopharma valuations since the drug pricing issue first rose to political prominence in 2015.
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