You may have wondered why drug prices in the U.S. are so much higher than they are in other countries. Per capita drug spending is 40% higher in the U.S. than Canada and 75% higher than similar spending in Japan. There are many reasons for higher prices, but one of the major reasons is that up until recently, Medicare was not allowed — by law– to negotiate prices of drugs on behalf of us, the Medicare recipients.
Why, you ask? That doesn’t make any sense! Private employers work with third party organizations to negotiate price. The VA and Medicaid can negotiate drug prices. Why can’t Medicare do that? It has literally been against the law to do so. Specifically, the 2003 Medicare Prescription Drug, Improvement, and Modernization Act (MMA)(P.L. 108-173) noninterference provision prohibited the Secretary of Health and Human Services (HHS) from negotiating Medicare drug prices or establishing a preferred drug list. You may have forgotten that drugs were not even included in Medicare until 2003, but it wasn’t until 2006 that the Part D drug program was available to all Medicare beneficiaries.
When the MMA was introduced in 2003, big pharma lobbied vigorously and successfully against allowing Medicare to negotiate drug prices. The rationale they put forward was that lower prices would hurt Medicare recipients because it would take away money from important research and innovation by the pharma companies. This has long been the argument of pharmaceutical companies against any government control over prices. But would price control deter innovation? Larry Levitt of the Kaiser Family Foundation comments in the New York Times:
…It’s reasonable to ask how many fewer drugs might get developed and which drugs those might be.
The Congressional Budget Office, the economic referee in legislative debates, estimated that the drug-pricing provisions of the I.R.A. would result in 13 fewer drugs coming to market in the United States over the next three decades. That’s a very small share of the 1,300 new drugs expected in that period. Some of those forgone drugs might be potentially lifesaving treatments, but some might be drugs that offer only marginal health benefits. It’s impossible to know for sure. (Larry Levitt, NY Times, Sept 6, 2023)
The good news is that in 2022, the Inflation Reduction Act, introduced and passed by the Biden Administration, allowed Medicare to negotiate prices for the first time. The immediate result was that the cost of insulin was reduced dramatically. As of January 2023 this year, the monthly cost of insulin was capped at $35, saving Medicare beneficiaries thousands of dollars a year in insulin costs. The President wanted to extend this benefit to all Americans, but because of Republican opposition, he was unable to get that aspect of the cost reduction in the final bill. Hopefully, in the not too distant future, all Americans with diabetes that require insulin, will be able to take advantage of these cost savings. For now, Medicare beneficiaries with diabetes have definitely noticed this reduction in cost.
As part of the Inflation Reduction Act, 10 other drugs were added to the list of drugs, the prices of which could be negotiated by Medicare for implementation in 2026. Medicare selected some of the most costly drugs to target. Between June 1, 2022 and May 31, 2023, these ten drugs cost Medicare $50.5 BILLION, because Medicare still pays most of the costs for these drugs. Included in this list is Eliquis, the blood thinner,on which Medicare spent $16.5 billion last year. Some of the other drugs targeted for future price reductions are the ones you see on TV all the time — Januvia, Xarelto, Jardiance, Entresto, etc.
In 2022, 9 million Medicare beneficiaries used one or more of these ten drugs, and, depending on the drug plan in which the beneficiary was enrolled, they paid a substantial portion of the cost themselves. The bad news is that these negotiated prices will not take effect until 2026. But each year more drugs will be added to the list, and by 2030, up to 80 Medicare covered drugs will have negotiated prices. In the meantime, in two years, by 2025, out of pocket drug costs will be capped at $2000, meaning that the ordinary Medicare beneficiary will not spend any more than $2000 in one year, no matter the diagnosis.
You could conclude that it’s all about politics, and you would be mainly correct. Unfortunately, the design of our health care system and the lobbying money that goes along with it, is a huge obstacle to change. The next logical step would be for Medicare to regulate or negotiate all drug prices, as almost every other country in the world does, and as the VA and Medicaid do now as well. But given our political environment, outright regulation would bring screams of protest and lawsuits from the drug companies and even stronger lobbying tactics and money poured into the system to defeat that idea.
In fact, the pharmaceutical industry has already brought several lawsuits to oppose Medicare’s price negotiation, calling it unconstitutional price controls. But regulation and negotiation are not equivalent. Larry Levitt notes:
In Medicare’s role as a purchaser of health care, drugs have been the exception, with no government leverage over prices. For decades, Medicare has set prices for hospital and physician services. President Ronald Reagan imposed constraints on Medicare’s hospital rates.
Medicare is a big purchaser of health care, but it is only one of many purchasers. For retail prescription drugs, Medicare accounts for 32 percent of the market, and private insurers make up 40 percent. Drugmakers are not required to sell their products to Medicare, and there are no limits on the prices they can charge to private insurers.
Some are concerned that drug manufacturers will try to charge higher prices to private insurers and employers to make up for lower prices in Medicare. That’s possible, though there are reasons to believe that won’t happen. If drug companies could charge more in the private sector and boost profits, why wouldn’t they already do that? And Medicare will make its negotiated prices public, bringing transparency to a market that is notoriously secretive and potentially setting a benchmark for private payers of health care.
Will price negotiations save money for Medicare but not for you, the recipients? While the Medicare program as a purchaser will benefit from lower drug prices, with the Congressional Budget Office projecting $98.5 billion in reduced spending over a decade, patients with Medicare will also save. Last year, about nine million Medicare enrollees spent $3.4 billion out of their own pockets on the 10 drugs that will initially be subject to negotiation. For some of these drugs, especially the highest-priced drugs on the list, patients typically pay co-insurance for their prescriptions, meaning they owe a percentage of the price. With lower negotiated prices, those payments will decrease, and even better, by 2025, there will be a “hard cap” of $2000 on your out of pocket drug costs. This is worth telling your friends about!
If you are enrolled in a Medicare Advantage Plan (Part C), drugs are usually included, so you don’t have to purchase a separate drug plan. Still, it is worthwhile calling the plan to be sure they still cover all the drugs you take. If you have what is called “Original Medicare” and purchase supplemental coverage as well as a separate Part D drug plan, open enrollment allows you to change plans every year, so you should definitely check out what 2024 offers.
The Medicare website that helps you evaluate different drug plans can assist you to compare drugs and their prices. (Be sure when you go to the website that it is a .gov website, because many websites look like they are government run Medicare but are not.) The website is fairly easy to navigate. You should establish a login, and you should enter all the drugs and their dosages, because that will give you the most accurate idea of your costs. The website will help you find out if your drugs are included in a specific plan. Every year the drug plans change their formulary — they add some drugs and drop others. The website allows you to compare up to three different Part D drug plans, but look carefully at the TOTAL DRUG AND PREMIUM cost for 2024 –that figure incudes deductible, monthly premiums and drug costs. Some plans have zero deductible or lower monthly premiums, but the costs come in the monthly price of drugs, so looking at the total costs for each plan is critical.
The cost of insulin has now dropped to no more than $35 per month, but some of the drug plans on the website do not reflect that new savings. For if you or a family member takes insulin, you may have to call the plan to verify that they will indeed cover the insulin and what the cost will be. The difference between what they used to charge and what they must charge now is in the thousands of dollars! (When I checked, it was $8000-$9000 a year for one type of insulin under the 2023 plan but only $420 for the entire year for the 2024 plan!)
It’s totally good news that Medicare is on the way to negotiating drug prices. Spread the word to your friends. As of last week, a Kaiser Family Foundation poll found that only 25% of adults even knew that the government now has the authority to negotiate drug prices for Medicare. You can also support the efforts of Medicare to negotiate the prices of even more drugs in the coming years, by letting your Senator or Representative know how you feel. Medicare has huge power in the marketplace. Allowing Medicare to negotiate drug prices makes total sense, and it’s beyond time to make that permanent.