After decades of failed attempts, Democrats have passed legislation aimed at curbing the prohibitive costs of drugs for some in the United States.
It will take years for people to realize some of the most important savings promised in the climate and health care bill that President Joe Biden signed into law this month.
The bill mostly helps the nearly 49 million people who signed up for Medicare drug coverage. But much of the direct savings will be ruled out after lawmakers stripped cost-saving measures for the majority of those covered by private health insurance.
A look at how some might benefit from the drug provision provisions of the Inflation Reduction Act and how drug companies might back off from these efforts.
For the first time, Medicare can negotiate prices for more expensive drugs.
“We have never had an entity that has been negotiating on behalf of such a large group of people before,” Lee Purvis, director of healthcare costs and access at AARP in the US, told me.
This new bargaining power won’t kick in until 2025, when Medicare will be able to haggle the price of 10 drugs covered by its prescription plan. By 2029, Medicare will be able to negotiate the cost of up to 60 drugs.
It will take some time because the Department of Health and Human Services will need to develop a plan for the selection of drugs that will be negotiated. The complex rule-making process will take years to elicit and face intense pressure and scrutiny from the pharmaceutical industry, which is eager to drill holes in the new rules.
“Negotiations will definitely be the biggest boost because the secretary is establishing a whole new program, and they’re going to do a lot of hiring,” Purvis added.
The savings are expected to be huge. The nonpartisan Congressional Budget Office estimates that costs could fall by as much as $100 billion over the next decade.
However, what medications Medicare and patients will make available remains a bit of a mystery.
In the first year, Medicare will be allowed to negotiate the cost of the 10 drugs it spends the most money on, as long as those drugs have been approved by the Food and Drug Administration for at least nine years and don’t have any competing generics on the market.
Right now, for example, the Eliquis blood thinner, used by 2.6 million Medicare recipients at an annual cost of nearly $10 billion, is likely to be at the top of that list.
That could spur drug companies to release new drugs at a higher price, knowing that a lower product cost would be negotiated in Medicare’s favour, warned Arthur Wong, an analyst at financial research firm S&P Global.
PhRMA, the trade organization that represents drug companies, has acknowledged that it intends to roll back the law.
PhRMA spokesman Brian Newell said in a statement emailed to The Associated Press.
Cover on out-of-pocket drug prices
The bill limits the amount of money Medicare recipients must use for the drugs, but, again, it will take some time for those rules to take root.
In 2024, Medicare will eliminate the 5% co-insurance required for patients who have achieved the catastrophic limit, which is currently set at $7,050 for out-of-pocket drug costs. Nearly 3 million Medicare patients achieved that limit sometime from 2015 to 2019, according to a study by the Kaiser Family Foundation.
The following year, out-of-pocket drug costs will be capped at $2,000 for Medicare Part D, which typically covers home prescription medications.
The Inflation Control Act addresses climate change, health care, and taxes, among other things. The final bill is a microcosm of what was initially proposed, but Democrats will still have some points to talk about this campaign season, says Insider Deputy Editor Dave Levinthal. “Even if it’s not all they want, it’s definitely something they can go and run on,” Leventhal said.
How will the price of medicines be controlled until then?
The Inflation Control Act contains a series of controls intended to immediately roll back the rising cost of medicines for Medicare. The bill sets insulin co-payments at $35 per month starting in January, but for Medicare beneficiaries only. The $35 per month limit on out-of-pocket costs has been cut for those with private health insurance.
Starting next year, drug companies will also have to pay a discount to Medicare if they raise the cost of the drug above the inflation rate. The industry regularly raises the price of medicines above the inflation rate annually.
A similar rule exists in Medicaid, so the Centers for Medicare and Medicaid has experience running that program, said Rachel Sacks, a law professor at Washington University in St. Louis.
“They helped control the rate of increase,” she said of the discounts.
Only Medicare patients will benefit directly from this. A move to include people on private insurance who were selling expensive drugs in the account was scrapped from the legislation.
Some health policy experts hope that this ruling, along with others in the package, will help insurance companies negotiate the price of drugs for their customers, which could lead to increased cost savings for millions of people.
But others are waiting to see if the bill has the opposite effect. Medicare makes up about a third of the drug industry’s market, which means companies can try to make more profits from elsewhere.
“This could be a threat that non-medicare payers may end up paying more or at least face more difficult negotiations with the pharmaceutical industry,” said analyst Wong.
The House of Representatives on Friday passed a bill that combats climate change, expands health coverage and raises corporate taxes.