For the first time, Medicare will be able to negotiate prices directly with drug companies, lowering prices on some of the costliest prescription drugs. On August 29, the Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), announced the first 10 drugs covered under Medicare Part D selected for negotiation. The negotiations with participating drug companies will occur in 2023 and 2024, and any negotiated prices will become effective in 2026. Medicare enrollees taking the 10 drugs covered under Part D selected for negotiation paid a total of $3.4 billion in out-of-pocket costs in 2022 for these drugs.
WVU Health Research Writer Linda Skidmore recently interviewed Dr. Khalid Kamal about the topic. Dr. Kamal, chair and professor in the WVU School of Pharmacy Department of Pharmaceutical Systems and Policy, said these price negotiations may impact the pharmacy benefit managers who currently act on behalf of insurance companies.
“This is a complicated process given the number of public and private health care programs in the United States. In the private market, price negotiations are generally done with the drug manufacturers by pharmacy benefit managers on behalf of the insurance companies. PBMs negotiate discounts or rebates with manufacturers based on guaranteed patient volumes.
“Although some public programs like the Department of Veterans Affairs and the 340B federal program get substantial discounts on their drugs, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 prohibited the federal government from negotiating discounts from drug manufacturers, even if drugs are being provided to Medicare beneficiaries. The Inflation Reduction Act now allows Medicare to negotiate some prescription drug prices directly with the manufacturers. Prescription drugs identified for negotiation will be subjected to a maximum fair price that will be negotiated between Health and Human Services and the drug manufacturer.
“There are pros and cons. Pros include the ability to negotiate lower prices using the Medicare population as a leverage, similar to the VA; consistent pricing across plans managing Medicare population; and improving efficiency in the system when one entity negotiates. The cons are that it’s not clear on the magnitude of discounts; there’s the possibility of limited choice of available drugs at discount; drug manufacturers may invest less in research and development of new innovative treatments; possibility that manufacturers may increase the list price at launch which may hurt the non-Medicare population; uncertainty of whether Medicare will negotiate prices or impose prices like reimbursements for other Medicare services.
“Overall, there will be savings for those enrolled in the pharmacy benefit. Other benefits to some seniors are the provision of vaccinations and a cap on insulin expenses. There should be no effect on people who don’t receive Medicare. However, in the past, private insurances have mirrored their policies on Medicare. If private insurance were to use the maximum fair price for price negotiations, will this make the manufacturers stop giving rebates or discounts or increase the list prices of the drug? We will have to wait and see.
“It is not clear if price negotiations will lead to drug shortages. It is possible that negotiated drugs may replace other drugs, resulting in higher utilization. If margins are insufficient, manufacturers may not expand manufacturing capacity, which can affect supply.
“We will have to see how the discussion around affordability is being shaped in addressing access to new, innovative drugs.” — Khalid Kamal, chair and professor, Department of Pharmaceutical Systems and Policy, WVU School of Pharmacy.
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If you are interested in interviewing Dr. Kamal, the media contact for this story is below:
MEDIA CONTACT: Linda Skidmore
Health Research Writer
WVU Research Communications