The 2022 passing of the Inflation Reduction Act means that, for the first time, Medicare can negotiate the prices of some prescription drugs.
Ten prescription drugs covered by the Medicare Part D benefit program are now subject to price negotiation. This program won’t affect prices until 2026 and will expand annually until 2029[1]. Medicare can only negotiate on the price of drugs that have a high total cost to the federal government, don’t have a generic alternative, and were approved by the FDA for at least the last seven years.[2]
What’s included in Medicare Part D?
People 65 and older and people with certain disabilities[3] are eligible for Medicare, a federally sponsored health insurance program. The optional Medicare Part D provides prescription drug coverage for about 52 million Americans as of November 2023.
Most people participating in Part D pay a small monthly premium and must pay an annual deductible before the Medicare drug benefit starts assisting with costs. How much the government assists on medication costs depends on a person’s income and the total cost of a person’s prescriptions, among other factors.
Is spending on Medicare Part D drugs increasing?
Part D spending depends on several things including enrollment numbers, according to the Congressional Budget Office.
One contributing factor is the size and quantity of drug manufacturer price rebates. Rebates are payments that manufacturers make to Medicare; on average, rebates are equivalent to 47% of the total price for standard drugs and 12% of the price for more specialized, expensive medications.[4]
According to annual reports by the Centers for Medicare and Medicaid Services (CMS), per-enrollee spending on Medicare Part D prescription drugs has decreased in recent years, falling 14% from a recent peak in 2015 to 2022.
How much is spent on the drugs that Medicare will be able to negotiate?
The 10 drugs undergoing price negotiation made up $50.5 billion in Medicare spending from June 2022 to May 2023. These include:
- Eliquis
- Jardiance
- Xarelto
- Januvia
- Farxiga
- Entresto
- Enbrel
- Imbruvica
- Stelara
- Fiasp/Novolog
These treat a variety of conditions including heart failure, diabetes, blood clotting, and arthritis.
From 2017 to 2021, these medications went from comprising 9.2% of total Part D expenditures to 16.9%. From June 2022 to May 2023, they accounted for around 20% of Medicare Part D expenditures.
Get facts first
Unbiased, data-driven insights in your inbox each week
You are signed up for the facts!
How else does the Inflation Reduction Act attempt to influence spending on prescription drugs?
The Inflation Reduction Act also requires drug manufacturers to offer rebates if their drug prices rise faster than inflation.
This increases the share manufacturers will pay without increasing the costs for beneficiaries or the Medicare program. Rebates would be deposited in the Medicare Supplementary Medical Insurance trust fund, which is one of Part D’s revenue sources.
Dig in to more data on Medicare spending and get the data straight to your inbox by subscribing to our weekly newsletter.
[1] As the program expands, it will also include Medicare Part B drugs, which are usually drugs that you wouldn’t give yourself and would be administered by a doctor or medical professional.
[2] Drugs eligible for negotiation include brand name drugs or biologics that do not have a generic or biosimilar equivalent and are at least seven years (for small-molecule drugs) or 11 years (for biological drugs) from FDA approval date. Negotiated drugs cannot be certain "small biotech drugs," account for less than $200 million of Medicare spending in 2021, or be a drug that treats a rare disease.
[3] Everyone eligible for Social Security Disability Insurance (SSDI) benefits is also eligible for Medicare after a 24-month qualifying period.
[4] From 2017-2020, high-cost, or "specialty," drugs were those where the average spend per claim exceeded $670. The threshold was $600 in 2016.
