Since 2006, the U.S. Medicare program, a public plan that provides health insurance coverage to Americans over the age of 65 and to some younger persons with disabilities, has provided coverage for prescription drugs. The legislation, which was passed when the Republican Party controlled the presidency and Congress, required that drug coverage be sold through private insurance companies. The role of the federal government was limited to such activities as setting minimum benefit requirements and publishing premium and benefit comparisons to program beneficiaries, as well as subsidizing premiums. Medicare had no say on the price at which drugs would be sold, which instead was based on negotiations between participating health insurers and pharmaceutical manufacturers.
In August 2022, the Inflation Reduction Act, which was passed when the Democratic Party was in power, included provisions that would increase the federal government’s role in Medicare. In particular, beginning in 2026, Medicare could begin negotiating prescription drug prices with pharmaceutical manufacturers. The impetus to price negotiation was to reduce both Medicare and beneficiaries drug spending. It has been widely reported that brand name prescription drugs prices are much higher in the U.S. than elsewhere.
The new law specifies that the government choose 10 drugs whose price would be negotiated for calendar year 2026, rising to 20 drugs in 2028 and beyond. In August 2023, the Medicare agency announced the first 10 drugs. These include Eliquis and Xarelto (blood thinners); Jardiance (diabetes and heart failure); Januvia, Farxiga and NovoLog (diabetes and other conditions); Enbrel (arthritis and psoriasis); Stelara (psoriasis, Crohn’s disease and ulcerative psoriasis colitis); Entresto (heart failure); and Imbruvica (blood cancers) (Johnson, 2023). Negotiations are to begin in early 2024, with the ultimate negotiated prices effective January 2026.
Immediately after the announcement of the 10 drugs, several groups filed suit against the federal government to block the law, with more lawsuits undoubtedly in the offing. The groups filing suit include several pharmaceutical manufacturers as well as the national organization representing them. Some of the reasons given in the filings are that their rights “are being violated because the program would force them to make statements on negotiated prices they believe are untrue … [and that it] unconstitutionally coerces drugmakers into selling their products at inadequate prices” (Allen et al., 2023). It is notable, however, that the traditional fee-for-service Medicare program, which covers half of enrollees and until recently covered far more, has always set hospital and physician prices. Besides the outcomes of these lawsuits, also unknown is how Medicare drug price negotiation, if ruled legal, would affect the prices paid by private insurers, which cover more than twice as many people as Medicare.