Congress Can Act Now To Lower Drug Costs by Allowing Medicare To Negotiate Prices

The high cost of prescription drugs is a major concern for many Americans. Nearly 9 in 10 older adults take prescription medication, yet high drug prices are leading to soaring out-of-pocket costs, dangerous drug rationing, and a depletion of limited financial resources—especially for those with fixed incomes. As the Senate considers taking up a new legislative package, it has a crucial opportunity to enact sorely needed changes that would rein in rising prescription drug prices and lower drug expenditures for millions of Americans. In particular, the drug pricing provisions that were passed by the U.S. House of Representatives as part of the Build Back Better Act would enable the federal government to finally negotiate drug prices—a policy supported by more than 80 percent of the public.

That suite of drug pricing reforms would benefit millions of seniors facing high drug prices, while also lowering health care costs for Americans with private insurance.

The benefits of allowing Medicare to negotiate drug prices

At present, the federal law prohibits Medicare from negotiating drug prices directly with manufacturers. Consequently, drug companies can set prices as high as the market will bear, meaning the government has essentially no choice but to cover many medications at unfair prices.

Late last year, the Senate Finance Committee released draft legislation that would enable Medicare negotiation for up to 10 drugs in 2025, 15 drugs in 2026 and 2027, and 20 drugs in 2028 and beyond. This would include drugs covered by both Medicare Part B (physician-administered drugs) and Part D (prescription medications). The secretary of the U.S. Department of Health and Human Services (HHS) would be empowered to negotiate prices directly with drug manufacturers for drugs with the highest spending for both Medicare Part B and Part D, as well as for all insulin products.

If the HHS secretary had full negotiation power today, they would be empowered to secure lower prices for expensive drugs used by millions of Medicare beneficiaries. As shown in Table 1, the set of drugs likely be eligible for negotiation includes those used to treat cancer, reduce the risk of blood clotting, and manage diabetes, arthritis, and other chronic diseases.

Figure 1

While not all of these drugs would become negotiated under the provisions outlined in the Senate Finance Committee draft, even negotiating a few of them could have a major impact on expenditures. For example, people with diabetes could see substantial savings for their insulin products. In 2019, more than 600,000 Medicare beneficiaries used NovoLog FlexPen, an insulin product, with average spending of more than $3,000 per beneficiary. Similarly, more than 1.1 million Medicare beneficiaries used Xarelto—a drug that treats and prevents blood clots—during that same year, with average spending per beneficiary totaling nearly $3,600.

According to the Congressional Budget Office, the drug price negotiation provisions of the House-passed Build Back Better Act would result in $79 billion in savings from 2022 to 2031. Notably, because many Medicare beneficiaries pay a coinsurance as a percentage of drug prices, lowering the price of drugs would directly reduce the amount seniors owe out of pocket.

Other reforms that would lower drug costs

In addition to reducing prices through Medicare negotiation, other reforms under consideration would reduce beneficiary costs at the pharmacy and lower health care premiums.

For example, Congress can limit the extent to which drug companies can hike prices of existing drugs by forcing them to pay rebates for any increases above the rate of inflation. In January 2022, some drug companies increased prices upward of 16 percent, more than double the rate of inflation, making already expensive drugs even more unaffordable. Critically, the House-passed Build Back Better Act called for applying these rebate requirements to the private insurance market in addition to Medicare, which would produce health care savings for people with employer-sponsored insurance as well as those who buy coverage on their own.

The House-passed legislation also contained a provision to cap out-of-pocket costs for drugs in Part D at $2,000 annually and spread their drug cost-sharing throughout the year. While the Affordable Care Act set an out-of-pocket maximum for private insurance, Medicare beneficiaries currently lack that protection. According to the Kaiser Family Foundation, 1.2 million seniors faced out-of-pocket drug costs of more than $2,000 in 2019, meaning they could have saved an average of more than $1,200 per year had a cap been in place.

Finally, the House bill capped the amount that patients would owe for some insulin products, making life-sustaining medications more affordable for people with diabetes. Despite the fact that insulin’s formula has not changed significantly since the drug was first discovered more than a century ago, today’s rapidly rising prices have prevented some people with diabetes from accessing treatment, leading to deadly rationing. To help address this, the legislation set a $35 cost-sharing limit for a monthly supply of some insulin products for both Medicare and private insurance.

Conclusion

Congress has the opportunity to pass drug pricing legislation that would be life-changing for millions of older adults. More than 4 in 5 seniors think drug costs are unreasonable. Senators should take the overwhelmingly popular step of enabling the federal government to negotiate prices. Lowering drug prices through negotiation, inflationary rebates, and insulin and cost-sharing caps would allow people—especially those with chronic conditions and disabilities—to access the treatment they need.

Senators have the power to meaningfully lower prices for some of the nation’s most expensive drugs—drugs that treat cancer, prevent blood clots, and treat autoimmune disorders. Passing drug price negotiations and other key drug reforms is a critical step toward lowering drug costs for millions of Americans.

Methodology

This methodology section describes the authors’ approach to determining which drugs would be eligible for negotiation by HHS. The analysis was based on the most recent publicly available version of drug price negotiation legislation, a draft released by the Senate Finance Committee on December 11, 2021.

To determine the highest spending drugs, the authors used the Medicare drug spending dashboards for Part B and Part D to pull a list of the top 50 drugs in each category with the highest total spending in 2019. After this, the authors used the U.S. Food and Drug Administration (FDA) “orphan designations and approvals” search tool to determine orphan drug status. Then, the authors examined drugs’ listings on Drugs@FDA to determine the number of manufacturers, year approved, nonorphan indications, approval of generics or biosimilars, and human blood or plasma status for each drug. Finally, the authors used SSR Health output to determine the therapeutic class for each drug.

Using these sources, the authors created a list of drugs that meet the following qualifications:

• Drugs that are FDA approved or licensed for nine years for small-molecule drugs and 13 years for biologic products
• Drugs that are not orphan drugs with no other FDA-approved indications
• Drugs that meet certain Medicare Part B and D spending thresholds
• Drugs that are not derived from human blood or plasma
• Drugs with no generic or biosimilar alternatives

These factors were then evaluated in combination with the requirements and restrictions on negotiation eligibility in the Senate Finance Committee draft legislative text to develop the final list of Part B and Part D drugs that would be eligible for negotiation if the legislation were to take effect at the time of publication.