The relatively recent passage of the Inflation Reduction Act, which among other provisions allows Medicare to negotiate prescription drug prices, marks a monumental shift in senior healthcare in America.
For the first time, Medicare will be empowered to leverage its purchasing power on behalf of millions of older adults and directly negotiate costs with pharmaceutical companies. This unprecedented authority to tackle drug prices signals a new era that could substantially lower out-of-pocket drug costs for some senior living residents and other other older adults and reshape the Medicare prescription landscape.
Currently, Medicare Part D plan sponsors negotiate with drug manufacturers to set prices. The Medicare program itself, however, had been barred from using its bulk buying power to bargain directly. Consequently, beneficiaries often faced high prices for vital medications.
Under the new legislation, starting in 2026, Medicare can negotiate prices for 10 high-cost drugs. This list will expand to 15 drugs in 2027, ramping up to 20 drugs per year by 2029. The secretary of Health and Human Services will choose the applicable drugs based on the highest spend and lack of competition.
For selected drugs, manufacturers that choose not to negotiate or don’t reach an agreed-on price will be penalized in the form of an excise tax of up to 95% of sales. This tactic is meant to encourage pharmaceutical companies to negotiate.
The Congressional Budget Office estimates $101 billion in savings over 10 years. With lessened drug costs, Medicare beneficiaries, the most frequent consumers of prescription medications, stand to reap significant savings.
Beyond negotiating authority, other pivotal measures will bolster affordability. The law empowers Medicare to offer free vaccines for health issues such as shingles. Older adults who have Medicare Part D coverage are able to access vaccines through their plans but often face copays and other out-of-pocket costs. Removing this barrier will encourage vaccine uptake, which will benefit community health.
Further, a $2,000 annual cap on out-of-pocket drug costs will start in 2025, offering added financial protections. Currently, only 25% of Part D enrollees have additional coverage with an out-of-pocket limit. For those lacking extra coverage, the sky could be the limit on drug spend. Putting an upper bound on costs, even if higher than ideal, will bring peace of mind.
With increasing inflation-strained budgets, the $35 monthly cap per month on insulin costs also will alleviate the financial burden for people living with diabetes. Overall, the suite of reforms targets affordability.
Beyond cost implications, empowering the Medicare program with negotiating authority has symbolic significance. It represents the budding recognition that comprehensive, government-provided healthcare is a right, not a privilege. Although Medicare negotiation applies narrowly, for now, it sets the precedent of the government flexing its muscles to act in citizens’ interests.
As HHS Secretary Xavier Becerra noted, “It means the power of Medicare, the purchasing power, can finally be used to force drug companies to the negotiating table and keep prices down for patients.” In essence, it signals the first step on a path of wider reform that puts patients over profits.
To fully realize the benefits, however, efficient implementation will be key. HHS will need to strategically identify high-impact drugs and take an aggressive stance at the negotiating table. Approaches could include refusing coverage for drugs deemed overpriced to pressure manufacturers to lower costs. The success rests on HHS’ savvy in understanding pharmaceutical company incentives and squeezing every ounce of leverage from Medicare’s coffers.
As talks proceed, pharma will try to protect profits. Arguments about stifled innovation and reduced incentives for new drug development likely will arise to try to temper Medicare’s negotiating zeal. But excess profitability in the industry suggests room for reductions without hampering progress.
Additionally, pharma may try to circumvent negotiations by tweaking drug formulations and extending patents. Vigilance from HHS will be imperative to prevent “evergreening” and other forms of exploitation. Billions in revenue are at stake, so pharma will resist change, making resolute negotiation indispensable.
Looking ahead, the forecast is sunny, with some clouds on the horizon. Price negotiation puts downward pressure on costs and offers relief, especially for low-income older adults. Negotiations, however, are limited to older generic drugs. Newer specialty meds, often having the highest prices, remain largely unaffected.
Taxpayers could foot the bill for lowered pharma revenue, with higher Part B and D premiums expected. And congressional budgetary approaches could mask the full cost impact. Still, any progress in allowing Medicare to leverage its full market power is undeniably a positive step.
The door of reform has cracked open, but broader changes are needed for transformative effects on drug affordability. Increasing the number of negotiated drugs and faster indexing of negotiated prices to inflation would maximize savings. Letting HHS set prices after considering research and development costs, rather than engage in drawn-out negotiations, could prove more efficient.
Most importantly, allowing Medicare to leverage its buying power across all prescription medicines — not just a handful — would revolutionize market dynamics. Combined with enabling negotiation of rates paid to hospitals, physicians and other providers, comprehensive Medicare reform could curb healthcare inflation and catalyze universal coverage.
Although the scope of the act remains limited, Medicare drug price negotiation gets the ball rolling. It signals that the government is acting in citizens’ interests. And that’s an outlook that older adults and all Americans can cheer.
Yet the time is ripe to capitalize on this momentum. Policymakers must make this hard-fought victory a springboard to even bolder reform that truly puts patients before profits. Medicare negotiation marks one milestone on the path to healthcare justice, but the marathon for lower drug prices and equitable access continues.
Luka Yancopoulos is CEO of Go Grapevine, a medical supply procurement and inventory management company.
The opinions expressed in each McKnight’s Senior Living marketplace column are those of the author and are not necessarily those of McKnight’s Senior Living.
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