The Biden administration’s price cuts for 10 common prescription drugs could save Medicare billions, starting in 2026.

The Biden administration announced on Aug. 16. 2024, reduced prices for the first 10 drugs it negotiated with pharmaceutical companies for their Medicare prices.

The provisions allowing these negotiations were part of the Price Reduction Act, which went into effect in 2022, but these lower prices are not scheduled to take effect until 2026.

Drugs are purchased through Medicare Part D, the drug coverage program for Americans 65 and older. 10 drugs were used by 9 million patients with Medicare coverage in 2023, and accounted for US $ 56.2 billion in total Medicare spending. If negotiated prices were in place that year, the government estimates that Medicare would have saved about $6 billion.

To put this in perspective: Total annual prescription drug spending in the United States is over $405 billion, and Part D alone spends over $215 billion.

As a scholar who researches the politics of health policy, I remain skeptical that the debate will end up having a major impact on the US health care system in the foreseeable future, even if the law you can survive ongoing legal and enforcement challenges.

At the same time, I expect that many seniors will reap significant savings from their out-of-pocket prescription drug spending in the years to come. But that will happen mainly because of some provisions of the Price Reduction Act.

Reducing drug costs for Medicare enrollees

The Inflation Reduction Act allows the Centers for Medicare & Medicaid Services to negotiate prices with companies that make some of the most expensive drugs in the Medicare program, including life-saving cancer and diabetes treatments like Imbruvica and Januvia.

Democrats have hailed these drug price targets as game-changers. Vice President Kamala Harris, who is currently running for president, has been trying to control drug prices as part of her election campaign.

Former President Donald Trump, however, was silent on the matter. Public opinion polls show overwhelming public support for the policy.

Medicare will soon begin negotiating the prices of other drugs, including 30 over the next two years.

If the plan continues as planned, the drug price negotiation arrangement is expected to save the US government $98.5 billion by 2031.

The Biden administration hopes that some of these cost savings will be passed on to Americans 65 and older through reduced Medicare Part D payments and lower out-of-pocket costs. The White House also hopes to reduce the federal deficit by $237 billion.

Some important benefits for adults

While discussions about Medicare drug prices have received a lot of attention, the Affordable Care Act included other provisions that may be even more beneficial to seniors.

These include limiting seniors’ out-of-pocket spending on prescription drugs to no more than $2,000 annually by 2025, limiting the growth of Medicare Part D premiums, providing discounts if a certain price drugs increase inflation, eliminating out-of-pocket costs. for immunizations and providing premium subsidies to low income earners age 65 and older.

Strong industrial opposition, but the companies negotiated

Despite their vocal opposition and their ongoing public relations campaign that has attacked this process, all those concerned about drugs in the US decided to enter into price negotiations.

Some draconian measures, which include paying a penalty of up to 95% of their sales of pharmaceutical products in the United States, and the requirement to withdraw their drugs from the Medicare and Medicaid markets, have proven to be strong incentives.

However, pharmaceutical manufacturers have been fighting the measure in court. And despite several losses, this war may continue for the foreseeable future, with uncertain results.

Why are US drug prices so high?

Americans pay significantly more for prescription drugs than people living in countries with similar economies. For example, per capita spending in the US reached $1,432 compared to $1,042 in Germany and $766 in France in 2022.

The reasons for this disparity are multifaceted and include the overall complexity of the US health care system and the lack of transparency in the drug supply chain. Of course, many other countries also directly set drug prices or use their power to regulate health services to lower costs.

Drug costs place a huge burden on Americans. People aged 65 and over are particularly affected, with 1 in 5 not taking all their medicines as prescribed due to high costs.

Measuring price negotiation expectations

According to me, the government’s efforts are a step in the right direction. The potential for real savings for Americans 65 and over will undoubtedly grow as more drug prices are negotiated.

However, there are still some things that people are concerned about.

Even if negotiated lower prices survive industry legal challenges, it is likely that a future Republican administration will not adopt this plan, as Republicans have opposed price negotiations for Medicare.

The real impact for Medicare patients may be much smaller than it appears. That’s because the Medicare program and patients often already get discounts on many of these drugs. These discounts will now be eliminated.

Additionally, the pharmaceutical industry has a history of exploiting loopholes that can further reduce financial performance. Manufacturers have already told shareholders that they expect limited effects on their profits.

It’s also too soon to tell if this will be a success for all Americans. Americans not covered by Medicare are likely to see prices rise, even for similar drugs. Therefore, working Americans may bear more burdens than providing this support to older adults.

This article includes quotes from a previous article published on Aug. 30. 2023.