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In a bold move to address the rising costs of prescription drugs, the Biden Administration has introduced the Inflation Reduction Act (IRA). This legislation is set to bring about significant changes to the pharmaceutical landscape. And it has the potential to save the US Government an estimated $25 billion in drug costs over the next eight years.

Some of the key provisions of the IRA include: 

  1. Medicare Part D savings: The IRA is designed to alleviate the financial burden on Medicare beneficiaries by reducing their Part D out-of-pocket (OOP) expenses.
  2. Medicare price negotiations: A list of ten drugs has been released by the Biden Administration for price negotiations under the IRA. These drugs, primarily used to treat chronic conditions, were selected based on their gross Medicare Part D spending from June 2022 to May 2023. This expenditure, amounting to over $50 billion, represents a staggering 20% of the Medicare program’s pharmacy drug costs annually.
  3. Agreement with CMS: Pharmaceutical companies producing the selected drugs are required to enter into an agreement with the Centers for Medicare & Medicaid Services (CMS) by 1 October 2023. Those failing to comply may face severe penalties, including a tax as high as 95% of U.S. pharmaceutical product sales. They may even see the removal of their drugs from the Medicare and Medicaid markets.
  4. Data transparency: To determine the initial maximum fair price, the CMS expects pharmaceutical companies to disclose confidential data, such as R&D costs, federal financial support, revenue, and sales volume.
  5. Negotiation timeline: The CMS will announce its initial offer by February 1, 2024. Companies will then have a month to respond. The public can expect the final negotiated prices to be published by September 1, 2024, which will be implemented on January 1, 2026.

Among the drugs chosen for the first round of negotiations are:

A lady calculating her medication expenses prior to Medicare's drug price negotiations.
The IRA is designed to alleviate the financial burden on Medicare beneficiaries by reducing Part D out-of-pocket (OOP) expenses.
  • Eliquis, Xarelto: For prevention and treatment of blood clots
  • Jardiance, Januvia, Farxiga, Fiasp, and NovoLog: For diabetes treatment
  • Entresto: For heart failure
  • Enbrel: For rheumatoid arthritis and psoriasis
  • Imbruvica: For blood cancers
  • Stelara: For psoriasis and Crohn’s disease

These ten drugs alone accounted for a whopping $50.5 billion in Medicare Part D prescription drug costs between June 2022 and May 2023. Furthermore, Medicare enrollees shelled out $3.4 billion in out-of-pocket (OOP) costs in 2022 for these medications.

Industry Pushback and Legal Hurdles

The pharmaceutical industry has not taken kindly to the IRA. Industry advocates argue that such measures could stifle innovation, deter investment in drug development, and potentially limit patient access. They also point out that many patients already benefit from significant rebates and discounts.

The Biden Administration is currently navigating through a sea of lawsuits from pharmaceutical giants and industry advocates who claim that the IRA is unconstitutional. Still, the administration remains steadfast in its legal stance. It is worth noting that the outcome of the 2024 presidential election could further influence the negotiation process.

Before the main provisions take effect in 2026, Medicare enrollees will see immediate relief. Starting in 2025, there will be a cap on Medicare Part D OOP costs at $2,000 annually and a $35 cap on a month’s supply of insulin.

The Road Ahead

The Congressional Budget Office projects that Medicare will save a monumental $98.5 billion over a decade from these price negotiations. As the CMS determines the maximum fair price for selected drugs, the agency will consider a variety of factors, including treatment alternatives and production costs.

Lowering OOP costs is not just about savings; it’s about health. Reduced costs can lead to improved medication adherence, benefiting both patients and the Medicare system.

As the IRA unfolds, it promises to reshape the pharmaceutical industry, aiming for a balance between innovation and affordability. Only time will tell if it delivers on its promises. 

Experience Care will keep you updated on the latest developments.