The Biden administration took a big first step Tuesday toward reducing the cost of prescription drugs for tens of millions of Americans. It released a list of the first 10 drugs that will be subject to price negotiations with Medicare, kicking off a multiyear process that should, if all goes according to plan, lower costs for the federal government and Medicare beneficiaries. It’s good news for the public, and an exceptionally powerful asset for President Joe Biden as he makes his case for re-election.
Previously, Medicare had to accept any price set by pharmaceutical companies, which are always set high to maximize profits. But the Inflation Reduction Act, which was signed into law last year, gave Medicare authority to negotiate the price of some prescription drugs directly with manufacturers. Since Medicare coverage represents such a huge swath of the health insurance market, representing about 65 million Americans, the government will have a tremendous amount of leverage when it comes to applying pressure to drug manufacturers to reduce prices.
The list’s unveiling marks Biden’s most tangible step toward fulfilling his campaign pledge of lowering drug prices.
The list of 10 drugs includes medications for diabetes, heart disease, arthritis and cancer. They were selected through a process meant to prioritize the drugs that constitute the biggest share of Medicare spending and don’t yet face competitors. These 10 drugs accounted for about $50 billion, or 20%, of Medicare Part D spending, according to the Centers for Medicare and Medicaid Services.
Now that the list has been released, the manufacturers of the listed drugs have until Oct. 1 to decide if they want to negotiate prices with the government. If they don’t, they either have to pay a huge tax or remove all of their products from Medicare and Medicaid. If a company opts for negotiations, the process will carry on through next year, and new prices are expected to be listed by Sept. 1, 2024. Under the IRA, the new prices, which will take effect in 2026, must be at least 25% lower than their original list prices. Additional rounds of drug price negotiations over other drugs are scheduled to begin in 2025.
Nicole Rapfogel, a health policy analyst at the Center for American Progress, said that the policy was “historic in nature.” She noted that the Congressional Budget Office estimates that drug prices could be reduced by 50%. That in turn could save the government nearly $100 billion over a decade. The cumulative effect of lower prices should lower Medicare Part D premiums and out-of-pocket spending for Medicare beneficiaries, Rapfogel said, although "we don’t know the magnitude of that" yet.
The list’s unveiling marks Biden’s most tangible step toward fulfilling his campaign pledge of lowering drug prices, and he’s already planning on making it a key part of his 2024 messaging. Lowering drug prices plays extraordinarily well across the political spectrum. Polling from the KFF, formerly known as the Kaiser Family Foundation, has found that huge majorities of Democrats, Republicans and independents believe that government regulation of drug prices is inadequate and favor the Inflation Reduction Act’s authorization of Medicare to negotiate for lower drug prices. While the GOP is generally a great friend to Big Pharma, some Republicans such as Sen. Josh Hawley of Missouri have bucked party orthodoxy and pushed for measures to involve the government in reducing prescription drug prices. It’s not hard to see why: It’s a rare policy issue that can win near-universal approval.
Pharmaceutical companies are suing to block Biden’s drug price policy, claiming it violates the Fifth Amendment’s ban on taking private property for public use without just compensation. It’s unclear how far those legal challenges will go, but there is some risk that Biden’s policy gets struck down.
But at least for now, it's another case of his administration executing policies that are both substantively good and politically advantageous. And as the left is keen to point out, it's a long overdue measure that would help bring the U.S. one step closer to its peer nations who use the government to regulate prices and protect their citizens from extortion.
