Medicare's decision to cut drug costs

Medicare Negotiations to Cut Drug Costs by Thousands Monthly

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The Center for American Progress published an article on February 21, 2024, detailing the impact of Medicare drug price negotiations on the cost of prescription drugs. The article highlights the significant reductions in drug prices resulting from the Inflation Reduction Act of 2022, which, for the first time in history, allowed Medicare to negotiate prices for prescription drugs.

Key Findings

Initial Negotiations: Medicare announced the first 10 Medicare Part D drugs selected for price negotiation in August 2023. The U.S. Centers for Medicare and Medicaid Services submitted its initial offer for these drugs in February 2024, with the negotiated prices set to be finalized and published in September 2024. These prices will take effect in January 2026.

Projected Savings: The analysis estimates that the net price reductions for a typical 30-day supply of these drugs could range from as low as $30 for insulin product NovoLog FlexPen to as high as $6,548 for the cancer drug Imbruvica.

Beneficiary Impact: Approximately 9 million Medicare Part D beneficiaries use these 10 drugs. Even minor reductions in monthly prices could lead to millions of dollars in annual Medicare savings. For instance, the price negotiation of Eliquis could result in a $123 reduction for a 30-day supply, significantly impacting the more than 3.5 million Part D beneficiaries who use this drug.

Long-term Benefits: Medicare will negotiate the prices of additional prescription drugs each year, totaling 80 drugs by 2030. The cumulative benefits of these negotiations are projected to save $25 billion through 2031, reducing beneficiary costs through lower premiums and cost-sharing.

Methodology

The analysis by the Center for American Progress used net per-unit Medicare Part D drug price estimates from the Commonwealth Fund, inclusive of discounts, rebates, and price concessions. It then calculated the likely monthly savings from Medicare’s price negotiation. The methodology accounted for the dosage and form of each drug, estimating the 30-day net prices before and after negotiation based on a projected 50 percent average reduction by the Congressional Budget Office.

Conclusion

The Medicare drug price negotiation represents a significant step forward in lowering the prices Medicare pays for prescription drugs, offering substantial savings for both Medicare and its Part D beneficiaries. As the program expands to include more drugs, the financial benefits for the Medicare system and its beneficiaries are expected to grow, highlighting the importance of this policy change in making prescription drugs more affordable.

Source: Center for American Progress

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