- Medicare will start negotiating drug prices starting in 2023, as implementation of drug provisions in the newly enacted Inflation Reduction Act (IRA) gets underway, but savings will come gradually over several years.
- Starting in 2023 drug manufacturers will be required to pay rebates to Medicare if drug prices rise faster than inflation.
- In 2023, insulin copays will be limited to $35 per month per prescription for diabetics, but most Medicare recipients will wait a couple of years, until 2025, for a $2,000 out-of-pocket cap on Part D spending to go into effect.
The Congressional Budget Office estimates that the Inflation Reduction Act prescription drug provisions will reduce Medicare spending on drug costs by about $288 billion and will save money at the pharmacy for beneficiaries as well. But those savings will unfold gradually over the course of the next four years.
The law authorizes the Health and Human Services Secretary to begin negotiating prices on certain prescription drugs in 2023 which are among those with the highest levels of government (and consumer) spending. The negotiated prices will go into effect in 2026 for the first 10 drugs and 60 drugs will have negotiated prices by 2029. Not all costly drugs are eligible for negotiation. The drugs that will be negotiated are limited to older single source brand drugs with no generic equivalents, meaning only one company manufactures the brand medication. Those targeted for negotiation include drugs having high spending in Part B or Part D that do not have competing small molecule generics or biosimilars. While negotiations begin in 2023, negotiated drug prices won’t show up in pharmacies until 2026 and thereafter.
In addition, the bill requires drug manufacturers to issue rebates to the Centers for Medicare and Medicaid Services (CMS) when a drug’s price increases faster than the rate of inflation. Manufacturers that fail to comply are subject to civil penalties. From 2019 to 2020, half of all drugs covered by Medicare had price increases above the rate of inflation over that period, according to the Kaiser Family Foundation.
Beginning in 2023, copayments for insulin taken by diabetics will be limited to $35 per month per prescription for covered insulin products in Medicare Part D plans and for insulin furnished through durable medical equipment under Medicare Part B with no deductible.
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Sources: “Understanding the Democrats’ Drug Pricing Package,” Rachel Sachs, Health Affairs, August 10, 2022. “How Would the Prescription Drug Provision in the Senate Reconciliation Proposal Affect Medicare Beneficiaries?” Juliette Cubanski, Tricia Neuman, Meredith Freed, Kaiser Family Foundation, July 27, 2022.