On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) (P.L. 107-169) into law, which included historic provisions that finally would enable Medicare to negotiate the cost of prescription drugs, put a $2,000 cap on Part D beneficiary out-of-pocket costs, and require manufacturers to rebate to the government the amount by which they raise prices for drugs above the rate of inflation. These reforms are ones the National Committee has worked for two decades since the ban on drug negotiation was placed into the Medicare Modernization Act of 2003 (P.L. 108-173), the law creating Medicare Part D. While the Inflation Reduction Act falls short of the more significant reforms we continue to advocate for, it is a significant achievement that will provide relief to seniors and people with disabilities, particularly to a subset of beneficiaries with very high drug costs. Further, the IRA lays down a foundation for future, stronger, drug pricing reforms.

Price Negotiation

Under IRA, the Secretary of Health and Human Services will be required to negotiate the price of eligible drugs on the following schedule:

  • 2026: 10 Part D (retail prescription drugs)
  • 2027: 15 Part D drugs
  • 2028: 15 Part B (drugs administered by physicians) or Part D drugs
  • 2029 and subsequent years: 20 Part B or Part D drugs

These numbers are cumulative and so over time Medicare can have more than 20 drugs that are subject to negotiation.

To be eligible to be negotiated, medications must be beyond their marketing exclusivity period:  small molecule drugs must have been on the market in the U.S. for at least nine years and biologics for 13 years. Other post-exclusivity drugs are also only eligible if they lack competition. The drugs for negotiation are selected from the 50 eligible drugs with highest total Part D spending and the 50 eligible drugs with highest total Part B spending.

Maximum Fair Price

The Inflation Reduction Act establishes a maximum fair price (MFP) that Medicare will pay that is the lower of the negotiated price or the average sales price for a Part B drug or the average wholesale price for drugs paid by non-federal purchasers.  Part B covered drugs are not self-administered and instead are given in a doctor’s office as part of their service.

Drug manufacturers who fail to provide Medicare beneficiaries with the MFP will be subject to civil monetary penalties up to 10 times the difference between the MFP and the inappropriate price that was charged.

Inflation Rebates

Pharmaceutical manufacturers will be required to pay the federal government a rebate on any Part B or D covered drug whose price increases faster than inflation.  The inflation rebate would be implemented beginning in 2023, using 2021 as the base year for determining price changes relative to inflation.

Out-of-Pocket Cap: The IRA eliminates the 5 percent coinsurance payment in the catastrophic phase of the Part D benefit beginning in 2024. In 2025, total patient out-of-pocket costs in Part D will be capped at $2,000.  The new hard cap will benefit 1.4 million Medicare beneficiaries who spend more than $2,000 a year out-of-pocket on drug costs.

Insulin Caps:  Beneficiary cost-sharing for Part D plans will be capped at $35 for approved insulin products during plan years 2023 through 2025, and the lesser of $35, 25 percent of the established maximum fair price or 25 percent of the negotiated price thereafter. In 2020, 3.2 million Medicare beneficiaries used insulin and their average annual out-of-pocket costs for the drug was $572.

Low-Income Subsidy (LIS) Eligibility: Eligibility for low-income subsidies under Part D of the Medicare program will be raised from 135 percent of the federal poverty line ($18,347 for an individual in 2022) to 150 percent ($19,320 in 2022) beginning January 1, 2024.  About 400,000 Medicare beneficiaries could be potentially helped by the expansion of income eligibility for full (LIS) benefits.

Vaccine Cost-Sharing:  Cost-sharing for Medicare Part D beneficiaries for vaccines recommended by the Centers for Disease Control and Prevention’s (CDC) Advisory Committee on Immunization Practices (ACIP) will be eliminated 2023.  The Affordable Care Act (P.L. 111-148) required private insurers to cover all vaccines approved by ACIP without enrollee cost sharing, but Medicare was exempted from this mandate.  While the pneumococcal, influenza, and COVID-19 vaccines are covered by Medicare Part B with zero cost-sharing, the shingles vaccine is not.  In 2020, 3.6 million Medicare beneficiaries received the vaccine to prevent shingles.  Under Part D, the current beneficiary out-of-pocket cost for Shingrix ranges from free to more than $175 per dose.  By covering all ACIP-approved vaccines without cost sharing, the IRA will eliminate this financial barrier to essential immunizations.

NATIONAL COMMITTEE POSITION

The National Committee continues to support the stronger provisions in the House-passed Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3), which would allow Medicare to negotiate many more drugs and would use the greater prescription drug price reform cost savings to add vision, dental and hearing coverage to Medicare.  Toward that end, we will support legislation than expands the number and eligibility of drugs that Medicare is required to negotiate, including high-cost brand-named drugs under exclusivity protection.  We will also continue to advocate for Medicare benefit improvements that are important to healthy aging.