Many celebrated the historic health care progress made with the House’s passage of the Inflation Relief Act on Friday. While there is widespread praise for Medicare eventually starting to negotiate drug prices, not everyone believes it will make a huge difference to the drug industry. The law excluded those covered by private insurance and left pharmacy managers who negotiate drug prices off the hook
The inflation-reduction law includes a provision that Medicare will begin negotiating drug prices in 2026, a key desire of some lawmakers who have pushed for more government involvement in the drug pricing industry for years. The Congressional Budget Office has calculated that provisions would save the Medicare & Medicaid services center nearly $102 billion by 2031. Meanwhile, skeptics say more government intervention could lead to less innovation and affect relationships between drug companies and investors.
Steven Bennett, a partner in Frier Levitt’s healthcare practice group, says some parts of the prescription drug industry may be only minimally affected.
“In general, when drug prices are high or increasing, industry players who profit from high drug prices benefit financially. Efforts to slow drug price growth or lower drug prices will have an impact on many of these industry players,” Bennett said. However, he concluded that “the true impact of the relationship between industry players is very complex, and the Senate bill may have a de minimis impact on large parts of the industry.”
Bennett pointed out that an earlier draft included inflationary allowances for drug price increases in both Medicare and the private insurance market. However, the application of inflationary discounts in the private insurance market was removed in the current version.
Another provision, which was stripped from the package by GOP lawmakers before it passed the Senate, would have put a cap on the cost of insulin at $35 a month. Although Republican lawmakers rejected the part of the proposal that would lower insulin costs for privately insured patients, they kept the provision that caps monthly insulin costs for Medicare patients.
Also telling is that prescription drug intermediaries — pharmacy benefit managers (PMBs) — are left out, which Bennett says shows the law may have a limited effect on the drug industry. PBMs, which negotiate drug prices on behalf of insurance companies and are often owned by the insurance companies, are the focus of the Federal Trade Commission’s corruption investigation. Although The FTC is currently investigating the impact of vertically integrated PBMs on access and affordability of prescription drugs, they are excluded in this package.
Bennett said a provision of the law that is sure to have a significant impact is the $2,000 cap on Medicare beneficiary out-of-pocket costs. “This will reduce annual costs for Medicare patients who take brand-name or generic drugs,” Bennett said.
For three years, Medicare will negotiate prices. But the scope will be limited. Medicare will negotiate drug prices for only 10 high-cost drugs that have no generic or biosimilar equivalent and have been on the market for several years, with more drugs brought to the negotiating table over time.
“The impact of this provision on drug manufacturers is muted in the short term, but they will likely appreciate the impact on drug pricing, knowing that this bargaining power will expand over time,” Bennett said.
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