Examining Medicare drug price negotiation, one year in

Unpacking Medicare’s New Drug Price Negotiations Rules: In 2022, Congress passed the Inflation Reduction Act (IRA), which for the first time allows the Department of Health and Human Services (HHS) to negotiate Medicare drug prices with pharmaceutical companies for ten drugs out of the more than 3,500 Medicare currently covers. Two new pieces of research from FREOPP health care scholars examine the provision one year in:

→ The new rules offer both rewards and risks. FREOPP Visiting Fellow Grant Rigney describes the process that negotiations will follow, which includes HHS and drug companies agreeing on a “maximum fair price” that determines how much Medicare will reimburse providers for a drug. This new reimbursement model will guarantee savings to taxpayers but exposes patients to risks if pharmaceutical companies choose to walk away from the table. If negotiations fail, many patients will be forced to change drug regimens, pay out of pocket for the same medications, or stop their medication altogether. The new guidance offers genuine potential to curtail outlandish drug prices, but it is essential that HHS considers the risks for Medicare beneficiaries if negotiations fail.

→ The negotiation program also contains important missed opportunities. When signing the IRA into law, President Biden promised $200 billion in savings through prescription drug reforms. But FREOPP Resident Fellow Gregg Girvan found that the Centers for Medicare and Medicaid Services (CMS) promulgated a rule that revised the IRA’s language and changed how drugs are selected for negotiation. The change, intended to rein in list prices, instead reduced the savings achievable through the negotiation program and could mean less savings, rather than more. In fact, according to FREOPP’s analysis, in 2026 the CMS rule will lead to an estimated $700 million less savings than the Congressional Budget Office estimated when evaluating the IRA. This is not what Congress intended. Regulators should revisit their rule to ensure that patients and taxpayers receive the maximum benefit from drug price negotiations.

Measuring the effectiveness of the No Surprises Act: Grant also revisited the No Surprises Act (NSA), implemented in January 2022 to prevent surprise medical billing, to determine whether it is living up to its promise to patients. The bottom line? The NSA has protected patients from surprise medical expenses, but its full effects are mired by complexities surrounding implementation, network adequacy, and compliance monitoring, all of which underscore the need for ongoing evaluation, refinement, and collaboration among all stakeholders. Health care providers, insurers, and regulators should learn from early feedback to increase transparency and focus on consumers.

The Fair Care Act is still the best path to comprehensive health care reform in the U.S.: Last summer, Rep. Bruce Westerman (R., Ark.) introduced the Fair Care Act of 2022, legislation designed to go beyond prescription drugs and tackle high prices and lack of access to care throughout the health care system. The bill is the product of a collaboration between Congressional health reformers and FREOPP researchers, and is built upon FREOPP’s four core reform principles: affordability for every generation, personalized insurance, fairness to taxpayers, and keeping care innovative and competitive for patients. It is also the nation’s flagship free-market health care reform bill. Anyone who wants to ensure that more Americans get high-quality, affordable health care should view the Fair Care Act as the gold standard.

Last chance to join us at Freedom & Progress 2023! FREOPP’s annual Freedom & Progress conference is just a week away. Check out the event website to see what’s in store and register today to secure your spot! Session topics include:

• The Moral Case for Freedom

• The Conservative Case Against Free Markets

• A Climate of Energy Abundance

• The Chinese Cold War

• Is Higher Education Obsolete?

• Bitcoin’s Comeback

• Defining Victory in Ukraine

And much more. You can view the agenda and build your own event schedule at freedomandprogress.sched.com.

Thanks for keeping up with FREOPP, and have a great weekend! 

FREOPP’s work is made possible by people like you, who share our belief that equal opportunity is central to the American Dream. Please join them by making a donation today.