The Senate Budget Reconciliation Bill, known as the Inflation Reduction Act, passed the Senate last Sunday. The bill reduces drug spending by the federal government on Medicare. The bill allows Medicare to negotiate the price of certain high-cost medications, caps out of pocket costs for Medicare beneficiaries, and penalizes drug manufacturers who increase drug prices faster than inflation.
The bill allows Medicare to negotiate the price of some costly drugs. Medicare pays for drugs through Medicare Part D and Part B programs. Consumers are either billed by physicians for drugs administered or they purchase drugs directly. In both events, prior legislation prevented Medicare from negotiating for lower drug prices with the pharmaceutical manufacturers. In this bill, price negotiation will begin in 2026 and will limited to 10-15 high cost drugs each year. Consumers may not notice a price reduction if their prescription drug is not up for a negotiated lower rate. Negotiated prices for 10 of the costliest drugs for Medicare will begin in 2026. Cost negotiation caps out at 20 drugs per year in 2029. The provision also introduces a $2000 annual cap on out of pocket costs for those on Medicare.
What the bill was unable to do, despite efforts by Democrats, is to cap the cost of insulin for diabetics at $35 per month. Using a parlimentary rule, Republican Senators, argued this part of the bill was not technically a federal budget item as it impacted private manufacturers. Efforts to help Americans faced with costly drug items will have to pass a filibuster proof Senate. Meanwhile, the Congressional Budget Office (“CBO”) estimates that the price negotiation will result in a savings of $101.8 billion over ten years.