The Inflation Reduction Act represents the most important effort in decades to reform how drug prices are set in the US, experts say.
“This will be game-changing,” said Rena Conti, an associate professor at Boston University’s Questrom School of Business who studies drug pricing passed the Senate on Sunday and which the House legislature could vote on as early as Friday.
Read on to learn what the bill – which also proposes investing $400 billion to fight climate change and raising taxes on companies – would do to bring down soaring drug prices.
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$2,000 limit on expenses
The biggest change for seniors in Medicare would be to limit out-of-pocket spending on drugs and vaccines. Vaccines should be free from next year. Starting in 2025, out-of-pocket drug spending will be capped at $2,000 per year. In 2024, costs would be capped at Medicare’s catastrophic coverage limit, which is $7,050 that year.
This is good news for seniors taking expensive medications.
“Today’s policy is basically unlimited out-of-pocket spending, and that’s really bad for people who need expensive medications,” said Stacie Dusetzina, associate professor of health policy at Vanderbilt University Medical Center. “For anyone who needs drugs to treat cancer, multiple sclerosis, rheumatoid arthritis — some of them have bills in excess of $10,000 a year.”
According to the Kaiser Family Foundation, 1.5 million seniors spent more than $2,000 on prescriptions in 2019. But the true number could be higher, Dusetzina said, citing research showing that 30% of Medicare beneficiaries who face high prices for cancer treatments fail to fill their prescriptions.
Tricia Neuman, director of the Medicare Policy Program at the Kaiser Family Foundation, found that half of Medicare beneficiaries live on $30,000 or less a year.
“This is a significant saving for people on relatively modest incomes,” she said.
Grants for low-income seniors
The bill will make more seniors eligible for low-income subsidies designed to pay for Medicare prescription drugs.
Beginning in 2024, the income threshold for eligibility for Medicare’s low-income subsidy will rise to 150% of the federal poverty line, from the current limit of 135%. (At today’s income levels, that means a single person could earn as much as $19,200 to qualify.)
As a result, about 400,000 more Medicare beneficiaries would receive grants under the new program, according to KFF research.
Price cap for insulin
The Inflation Reduction Act caps spending on insulin in old age at $35 a month – a boon to the more than 3 million older Americans who use insulin to control their diabetes. A determination that would have this upper limit imposed on all patients was dropped from the bill at the last minute, despite bipartisan support.
Since 2007, the number of Medicare beneficiaries using insulin has doubled, but Medicare spending on insulin has grown twice as fast, KFF research shows. One in four diabetic patients has saved on insulin because of its cost.
A few high-priced drugs will be cheaper
The bill also includes several minor changes to limit overall drug price increases. Most importantly, the measure directs the government to negotiate what Medicare will pay for a small group of drugs beginning in 2026.
In 2026, the first year the drugs will be negotiated, the list will include the 10 drugs on which Medicare spent the most money in the previous year. By 2029, this list would expand to 20 drugs, including drugs filled in pharmacies and drugs administered by doctors, such as B. some chemotherapy treatments.
“The costs — and the savings for the federal government — increase significantly as more drugs are added,” said Michael Levesque, senior pharmaceutical analyst at Moody’s Investors Service.
The bill limits the government’s negotiating powers to drugs that have been on the market for at least nine or 13 years, depending on the drug class, and for which there is no generic or biosimilar equivalent. The bill also directs the US to focus on the drugs on which the government spends the most money.
“They have to be long-lasting, high-spending drugs and ones that have stood up to the competition,” said Boston University’s Conti.
The top-spending drugs on Medicare in 2020 include blood thinner Eliquis ($9.9 billion), cancer treatment Revlimid ($5.4 billion), and blood thinner Xarelto ($4.7 billion). U.S. dollar).
Conti estimated the savings would amount to 40% to 70% of the price of a given drug. The Congressional Budget Office estimates that the government should save more than $100 billion over a decade by negotiating drug prices. That’s less than 3% of the earnings global biopharmaceutical companies will generate over the next decade, UBS analysts predict.
The bill should also reduce costs directly for patients taking these specific medications. “Many people pay co-insurance based on the [medication] Price. If the price is lower and they pay 33% co-insurance, they pay a lower price out of pocket, KFF’s Neuman said.
Discounts for expensive drugs
The Inflation Mitigation Act requires drugmakers to offer Medicare rebates if they increase drug prices faster than inflation. Soaring prescription drug prices are one reason Medicare costs have skyrocketed over the past decade.
Medicare Part D prices for branded drugs with no generic equivalent have increased an average of 7.5% per year since 2010, according to MedPAC. Fully half of the drugs in the program rose faster than inflation, KFF noted. Requiring drugmakers to pay back Medicare for rising drug prices could save the government $71 billion over the next decade, the CBO estimates.
“The Medicaid program has long taken advantage of these drug inflation rebates and has made tremendous savings,” said Dusetzina of Vanderbilt. “If the same programs are applied to the Medicare population, there will be a lot of money saved in the long run, and that saves us all money as taxpayers.”
Are there benefits for privately insured patients?
Aside from a provision to extend health insurance subsidies for Obamacare plans by three years, the health aspects of the inflation bill are narrowly focused on Medicare patients. Experts are divided on what impact, if any, Medicare drug reform would have on the majority of Americans who receive health and drug coverage through their employers.
Some believe that drug companies will try to offset lower profits in the Medicare market by overcharging private insurers; another believes the transparency of Medicare payments would make it easier for private health insurers to negotiate even better rates. For example, more private administrators of pharmacy services could begin to include inflation protection in their contracts.
The pharmaceutical industry has said the prospect of price negotiations for some top-selling drugs would dampen innovation and reduce drugmakers’ incentives to bring new drugs to market. Pharmaceutical Research and Manufacturers of America, the industry trade group, called it a “tragic loss for patients” and said the law would “result in fewer new cures and treatments for patients battling cancer, Alzheimer’s and other diseases.”
However, the CBO noted that the new law would result in just 10 fewer drugs coming to market over the next decade — about 1% of the total expected FDA approval.
Dusetzina called claims that drug price negotiations would destroy the drug development market “exaggerated”.
“Every other country negotiates drug prices,” she said. “We pay by far the highest prices, [yet] These companies are known to make profits in other countries where they sell these drugs.”
Could drug makers try to trick the system?
Experts noted that drugmakers may seek to circumvent price controls on their most popular drugs, for example, by introducing competing generic drugs that do not offer large price savings over the brand-name drug, or by raising the price of new drugs to cut costs in older ones.
Dusetzina said the bill offers a “toe in the water” to see how the pharmaceutical industry responds to price negotiations on a very limited scale.
She added, “Medicare is something we all pay for, so if we’re not getting a good deal, we should all be concerned.”