Experts say the Inflation Reduction Act is the most significant effort in decades to change how drug prices are set in America.
“It’s going to be game-changing,” said Rena Conti, an associate professor at Boston University’s Questrom School of Business who studies drug pricing, of the law, which passed the Senate on Sunday and which will have members of the United States Senate House of Representatives can already vote on Friday.
Read on to find out what the bill – which also proposes investing $400 billion to fight climate change and raising taxes on companies – will help bring spiraling drug prices down.
$2,000 limit on expenses
The biggest change for seniors on Medicare will be how much they spend on drugs and vaccines. Vaccines will be free from next year. Starting in 2025, out-of-pocket drug spending will be capped at $2,000 per year. In 2024, costs will be capped at Medicare’s catastrophic coverage limit, which is $7,050 that year.
This is good news for older people who take expensive medication.
“Today’s policies are basically unlimited spending and really bad for people who need expensive medications,” said Stacey Dusetzina, associate professor of public health policy at Vanderbilt University Medical Center. “For someone 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, adding that research shows that 30% of Medicare beneficiaries who face high prices for cancer treatments fail to fulfill their prescriptions.
Tricia Newman, director of the Medicare Policy Program at the Kaiser Family Foundation, said 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.
Subsidy for low-income seniors
The law makes more seniors eligible for low-income subsidies designed to pay for Medicare drugs.
Beginning in 2024, the income threshold to be eligible for Medicare’s low-income subsidy will rise from the current 135% limit to 150% of the federal poverty line. (Using today’s income levels, this means a person could earn as much as $19,200 to qualify.)
As a result, about 400,000 more Medicare beneficiaries will receive grants under the new program, according to KFF research.
How Drug Pricing Reform Will Work in Anti-Inflation Law 01:38
Insulin price range
The Inflation Reduction Act caps how much seniors should spend $35 a month on insulin — a boon to the more than 3 million older Americans who use insulin to control their diabetes. Despite bipartisan support, a provision removing this limit for all patients was removed from the bill at the last minute.
Since 2007, the number of Medicare beneficiaries using insulin has doubled, but the amount Medicare spends on insulin has doubled, KFF research shows. One in four diabetics saves on insulin for cost reasons.
Some expensive drugs will be cheaper
Overall, the bill includes several small changes to limit 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 drugs are negotiable, the list will include the 10 drugs on which Medicare spent the most money in the previous year. By 2029, that list will expand to 20 drugs, including pharmacy and prescription drugs, like some chemotherapy treatments.
“The costs — and the savings for the federal government — increase significantly as more drugs are added,” said Michael Levesque, chief pharmaceutical analyst at Moody’s Investors Service.
The bill limits the government’s scope 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 durable, expensive drugs that stand up to the competition,” said Conti of Boston University.
The top-spending drugs from Medicare in 2020 included blood thinner Eliquis ($9.9 billion), cancer drug Revlimid ($5.4 billion), and blood thinner Xarelto ($4.7 billion). Dollar).
Conti estimated the savings would be between 40% and 70% of the cost of a given drug. The Congressional Budget Office estimates that over a decade the government should save more than $100 billion by negotiating drug prices. Analysts at UBS estimate that this accounts for less than 3% of the profits that global biopharmaceutical companies will generate over the next decade.
The bill should also directly reduce costs for patients taking these specific drugs. “A lot of people pay a coin based on that [medication] Value. When the price is low and they pay 33% of the coin, they pay a low price out of pocket, KFF’s Neumann said.
Discount for expensive drugs
The Inflation Mitigation Act requires drugmakers to offer Medicare a rebate if they increase the price of drugs faster than inflation. Rising prescription drug prices are one of the reasons 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 MedPack. Fully half of the drugs in the program rose faster than inflation, the KFF found. The CBO has estimated that drugmakers are paying Medicare for rising drug prices, which should save the government $71 billion over the next decade.
“The Medicaid program has been taking advantage of these drug inflation exemptions for a long time, and they have tremendous savings,” said Ducetzina of Vanderbilt. “Implementing the same programs for the Medicare population would save a lot of money in the long run, and it saves money for all of us as taxpayers.”
Affordable Care Act subsidies benefiting millions in Inflation Reduction Act 02:01
Are there benefits for privately insured patients?
Along with a provision to extend health insurance subsidies for Obamacare plans by three years, the health aspects of the inflation bill are less focused on Medicare patients. Experts are divided on how Medicare drug reform will affect the majority of Americans who receive health and drug coverage through their employers.
Some believe drug companies will try to make small profits in the Medicare market by charging more than private insurers; Another believes transparency into the costs paid by Medicare will make it easier to negotiate better prices for private plans. For example, more private administrators of pharmacy services could begin to include inflation protection in their contracts.
The pharmaceutical industry has said price negotiations on some of the best-selling drugs are likely to stifle 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 treatments and therapies 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.
Ducetzina claimed that negotiating drug prices would “overflow” the drug development market.
“Every other country negotiates drug prices,” she said. “We pay the highest prices ever, [yet] These companies are known to make profits in other countries where they sell these drugs.”
Can drug manufacturers try to sabotage the system?
Experts noted that drug manufacturers may try to avoid price controls on their most popular drugs, for example by introducing competing generic drugs that do not offer significant price advantages over a branded drug, or by introducing new drugs. by increasing prices. To reduce the cost of the elderly.
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.
“Medicare is something we all pay for, so if we’re not getting a good deal, we should all be concerned,” she said.