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Medicare is negotiating drug prices. Here's why that matters

For the first time in history, Medicare is negotiating prescription drug prices. Advocates hope the move will save Medicare recipients and the government money.
Prescription Drugs
Posted at 9:26 AM, May 24, 2024

For the first time, Medicare is now negotiating the prices of some prescription drugs. That could mean lower costs, mostly for seniors, starting in 2026.

It's a move with overwhelming public support, and a provision most Americans don't know exists.

Medicare had been prohibited from negotiating drug prices when lawmakers created Medicare's Part D outpatient prescription drug program in 2003. The argument from the Republican-controlled congress was that less revenue for drug companies would mean less innovation.

The rule changed when the Inflation Reduction Act passed in 2022 along party lines.

"Finally we beat Big Pharma. Finally, I'm serious. I'm proud my administration is taking on Big Pharma in the most significant ways ever," said President Biden during an April 3 address.

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When President Donald Trump was in office, he suggested Medicare be allowed to negotiate drug prices, but it didn't happen. He also proposed allowing Americans to import certain drugs.

"I'm giving governors the right to go to Canada because they'll pay approximately 50% less for their drugs that they buy for their states," he said in November 2020.

Direct negotiations by the federal government may have an impact beyond Medicare recipients.

The hope lies in scale, with 60 million Americans on Medicare. Advocates believe drug companies will have to cave on price or risk losing business to other drugmakers.

Drugmakers have lobbied hard against reforms like these. The pharmaceutical and health care products industry consistently spend more than any other industry lobby. They've spent $107 million so far in 2024 and topped $382 million in 2023, according to OpenSecrets, a nonpartisan watchdog group that tracks money in U.S. politics.

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For now, only 10 drugs are up for negotiation, including Eliquis and Xarelto for blood clots, and Jardiance, Januvia and Farxiga for diabetes.

President Biden's moves to lower drug costs also include requiring manufacturers to pay rebates to Medicare if prices increase faster than inflation and capping out-of-pocket drug costs at $2,000 in 2025.

President Trump fought pharmacy benefit managers, seen as middlemen, incentivized to charge more for drugs.

Most of the recent moves to cut prescription drug costs are riding on the power of Medicare and are credited to the Inflation Reduction Act.