What Does Medicare Drug Price Negotiations Mean For Me?
The Power of Negotiation Enables Medicare to Lower Drug Prices
In today’s healthcare landscape, the soaring cost of prescription drugs has become a critical concern for millions of Americans. As Medicare beneficiaries struggle with skyrocketing medication prices, the power to negotiate Medicare drug prices emerges as a potential solution.
With over 65 million enrollees, Medicare has significant purchasing power. However, unlike private insurers, Medicare is legally prohibited from directly negotiating drug prices with pharmaceutical companies. This restriction has prevented the program from achieving lower prices for its beneficiaries.
But what if Medicare could negotiate directly? What impact would it have on drug costs?
Empowering Medicare to negotiate drug prices may unlock savings all around, ensuring seniors receive affordable access to the medications they need. Or it may not. Let’s explore the government’s attempt to make Medicare drug prices more affordable through negotiations.
The Inflation Reduction Act of 2022
Medicare, the federal health insurance program for individuals aged 65 and older, is crucial in providing affordable
healthcare to millions of Americans. With over 65 million enrollees, Medicare has substantial purchasing power. However, when negotiating drug prices, Medicare cannot negotiate directly with pharmaceutical companies.
Medicare is divided into parts, including Part A, which covers hospital insurance, and Part B, which covers medical insurance. Part D, prescription drug coverage, is the focus of this discussion. Medicare Part D provides beneficiaries access to a wide range of prescription medications, but the prices for some of these drugs are often exorbitant. The inability to negotiate directly with pharmaceutical companies has limited Medicare’s ability to control drug costs.
President Biden signed the Inflation Reduction Act of 2022 into law on August 16, 2022. One of the provisions of the law was to lower prescription drug costs for those on Medicare. The law gives the federal government limited power to negotiate drug prices for the costliest Medicare medications.
Non-Interference Clause Changed To Interference
The power to negotiate drug prices for Medicare Part D is a significant policy change. When the Medicare Part D program was created in 2004, the Health & Human Services Secretary was prohibited from interfering with negotiations between drug manufacturers, pharmacies, and prescription drug plan sponsors. This was the agreement at the time of Part D’s creation. It was referred to as the “Part D non-interference clause.”
A provision in the Inflation Reduction Act grants an exception to the non-interference clause. The law permits the HHS Secretary to directly negotiate with pharmaceutical companies on behalf of Medicare and the sponsored plans for a limited number of drugs with only single-source and non-generic brands starting in 2026 for Part D and 2028 for Part B medications.
The schedule for the negotiations is set, but the implementation of the changes is not scheduled to take effect until 2026. That is when the first set of selected drugs with newly negotiated prices covered under Part D will be available.
Price Controls & Punishing Penalties for Pharmaceutical Companies
Another policy change is that drug companies will be penalized for raising prices higher than the current inflation rate. They will be required to pay Medicare rebates for drug prices exceeding the consumer price index (CPI-U). The penalties will be for those most expensive drugs that HHS identifies. This is an entirely new power for the HHS Secretary. The Part D inflation rebate provision takes effect in 2022, so prices and inflation will be measured from that point. The rebate penalty will start in 2023.
$35 Insulin on Medicare
Diabetes is a growing problem in the U.S., including among Medicare beneficiaries. Insulin costs among this population have been staggering. In 2023, as part of the Inflation Reduction Act, insulin offered under Part D is set at $35 during the deductible, the initial phase, and even during the Medicare gap (donut hole). A prescription plan is not required to offer all insulins, but the ones they do must not exceed $35, and some are even $11.
$2,000 Out-of-Pocket Cap on Part D Prescriptions
The Medicare provision of the Inflation Reduction Act caps out-of-pocket spending for Medicare Part D beneficiaries at $2,000 in 2025 for each individual, excluding premiums. The 2024 provision of the law eliminates the 5% catastrophic Part D phase, effectively capping medication costs at $3,250 for 2024.
August 29, 2023: The HHS secretary announced the first list of ten medications for Medicare drug price negotiations.
- Eliquis-Bristol-Myers Squibb-a blood thinner to prevent blood clotting to reduce the risk of stroke
- Xarelto—Johnson & Johnson–a blood thinner to prevent blood clotting to reduce the risk of stroke
- Januvia—Merck–a diabetes drug to lower blood sugar for Type 2 diabetes
- Jardiance—Boehringer Ingelheim–a diabetes drug to lower blood sugar for Type 2 diabetes
- Enbrel—Amgen–a rheumatoid arthritis drug
- Imbruvica—Abbie–a drug for blood cancers
- Farxiga—AstraZeneca–a drug for Type 2diabetes, heart failure, and chronic kidney disease
- Entresto—Novartis–a heart failure drug
- Stelara—Janssen–a drug for psoriasis & Crohn’s disease
- Fiasp & NovoLog—Novo Nordisk—insulins for diabetes
According to CMS (Center for Medicare & Medicaid Services), these ten drugs were selected because they account for $50.5 billion, or 20% of Medicare Part D spending from June 1, 2022 to May 31st. They are very commonly used medications by the Medicare population.
My Experience As An Insurance Professional
I can attest to this fact after the Annual Election Period for 2023. We ran hundreds of Part D prescription drug plans for clients. These medications come up over and over again, and they are the cause of incredibly high copay totals for clients.
For those on Medicare, nearly 1 in 10 have heart conditions that put them at risk of blood clots. I see Eliquis and Xarelto were on many clients’ medication lists this year. Diabetes affects 28%, so Januvia, Jardiance, and NovoLog appear repeatedly. Some of my clients should be on Enbrel for rheumatoid arthritis, but even with Medicare insurance, the cost is beyond their reach.
Medicare Drug Price Negotiations May Be an Empty Jester
The law is not without its challengers. Several pharmaceutical companies are suing the federal government for its overreach into their business. The government is attacking their right to free speech but also threatening industry and individual businesses with extinction if they do not comply with the “negotiated” terms of the “agreement.”
The U.S. Chamber of Commerce sought an injunction to halt preliminary negotiations on Oct 1, 2023, the day the drug companies were required to sign an agreement to participate in the negotiations. A federal judge, U.S. District Judge Michael Newman, in Dayton, Ohio, ruled on Sept 29, 2023, that negotiation could go forward.
Johnson & Johnson owns the drugmaker Janssen. In a lawsuit filed July 2023 in U.S. District Court in Trenton, N.J., Johnson & Johnson claimed Medicare drug price negotiations are unconstitutional. The situation leaves its company, Janssen, with no choice if it refuses to negotiate on Stelar because it must withdraw all drugs from Medicare and Medicaid, which is 40% of the U.S. healthcare market. “It is akin to the government taking your car on terms that you would never voluntarily accept and threatening to take your house if you do not ‘agree’ that the taking was ‘fair,’” the company said.
The myriad legal challenges could significantly delay or completely overturn the law’s implementation.
Innovation & Markets May Render the Law Meaningless
All of this activity may end up being an exercise in political theater. Politicians appear to care about the average citizen on Medicare, and the insurance companies keep making money from high-priced medications.
The pharmaceutical behemoth, Merck, will likely lose its exclusivity in 2026 on its medication, Januvia, one of the first ten drugs up for negotiation. If that happens, most of the business will go to cheaper generic versions when the patent expires.
The same can be said for AstraZeneca’s Farxiga for Type 2 diabetics. AstraZeneca will lose its exclusive patent in 2026. Johnson & Johnson’s Xarelto, Novartis, and Entresto will lose exclusivity in 2027. Many of these drugs on the first list may come down significantly in price naturally through market forces, especially if the current schedule of drug negotiations is delayed through litigation. The desired effect will take place. Lower drug costs. The cause may not be government coercion but rather the effects of innovations and competition. The politicians, however, will take the bows if it works.
Eliquis, taken for blood thinning, will no longer be protected by its patent in 2028. Bristol-Myers Squibb and Pfizer’s revenue will decline, whether by government legislation or patents ending.
Competition is also eroding prices. AstraZeneca has Calquence, and Beigene has Brukinsa. Both are for blood cancer, which now competes directly against AbbVie’s Imbruvica.
Ultimately, the consumer may still benefit, but it may not be by the hands of the politicians who claim credit.
Help Is on the Way
Whether from government intervention or efficient capital markets and technological advances, medication prices, like microchips, computers, and flat-screen televisions, will go down. I remember when Celebrex was a high-dollar medication. Celecoxib, the generic, is now $5 or even zero on some plans. Then, there will be new medications that are better than the ones we use now, but if we want to use those newer, better medications, we will have to pay new, higher prices.
Every year during the Annual Election Period, we run the medications for our clients to ensure they have a reliable plan with the lowest possible overall costs, regardless of Medicare drug price negotiations. We look at all the moving parts: premium, deductible, gap.
Christopher J. Grimmond, MA, CFP
Call us at Omaha Insurance Solutions at 402-614-3389 to speak with a licensed insurance agent professional to make sure you have the plan that meets your needs and budget.
