For far too long, drug companies have been free to both set prices as high as the market will bear and raise these prices year after year. In fact, according to a 2023 analysis by AARP, the 25 drugs with the highest aggregate Medicare spending have more than tripled in list price since entering the market. With 1 in 3 U.S. adults unable to afford taking their medication as prescribed, high and rising drug prices are having devastating impacts on Americans’ health and wallets.
To combat excessive pharmaceutical price hikes, the Inflation Reduction Act required drug companies to limit their Medicare price increases to the inflation rate or pay rebates, enabled Medicare to negotiate lower drug prices, and capped out-of-pocket spending for Medicare beneficiaries. However, while the law makes substantial strides toward lowering drug prices and improving access and affordability for people with Medicare, its provisions do not extend beyond Medicare to the commercial market, which covered nearly 55 percent of all Americans in 2021 and where excessive price hikes are also a significant concern.
With 1 in 3 U.S. adults unable to afford taking their medication as prescribed, high and rising drug prices are having devastating impacts on Americans’ health and wallets.
To help provide insight into the scope of this issue, the Center for American Progress conducted an original data analysis to assess the state of drug price increases across insurance markets compared with inflation. CAP found that in July 2023, drug companies raised their list prices above the annual inflation rate of 3 percent for 112 drugs. Drug list prices exclude rebates and discounts applied throughout the drug financing supply chain, and these manufacturer-set prices apply across all payers.
The Inflation Reduction Act limits excessive drug price hikes
In addition to enabling Medicare to negotiate drug prices and limiting Medicare beneficiaries’ out-of-pocket costs, the Inflation Reduction Act requires drug companies that increase their prices above the inflation rate to pay rebates to the Medicare program. This rebate requirement took effect on October 1, 2022, for some Medicare Part D drugs and on April 1, 2023, for some Medicare Part B drugs.
To determine which drugs will require inflation rebates in accordance with the Inflation Reduction Act, the Centers for Medicare and Medicaid Services (CMS) will rely on a combination of data submitted by manufacturers and other sources. Since April, CMS has used this methodology to publish lists of nearly 100 Medicare Part B drugs subject to rebates that could result in consumers saving as much as $600 per dose in coinsurance. Critically, these inflation rebate provisions do not apply to the drugs taken by more than 176 million Americans with commercial insurance.
In the commercial market, drug companies are raising some prices faster than inflation
To assess the scope of drug price increases above the inflation rate in the commercial market, CAP analyzed a dataset provided by Patients for Affordable Drugs of all drugs with list prices that increased more than 1 percent on July 1, 2023. These price changes represent one of two times drug companies typically adjust their prices in a given year: January 1 and July 1. The analysis used the 3 percent Consumer Price Index for All Urban Consumers (CPI-U) for June 2022 to June 2023 as the inflation rate against which to compare price hikes, aggregating all dosage forms and strengths of each drug by taking the median price increase across all variations of a drug produced by a single manufacturer.
List prices, or wholesale acquisition costs, are the prices manufacturers set independent of any rebates or discounts and are the basis for drug prices across markets. Notably, they differ from the annual manufacturer price, or “weighted average price paid to a manufacturer by wholesalers for sales of the drug to retail community pharmacies, as well as such pharmacies that purchase drugs directly from manufacturers,” which CMS uses to determine which drugs are subject to Medicare inflation rebates.
Drugs with price increases above inflation (3 percent) in July 2023
Median increase in drug price among those with price increases greater than 1 percent
In June 2023, various drug companies hiked list prices for 112 drugs above the 3 percent rate of inflation. Among all drugs with price hikes greater than 1 percent, the median price increase was 3.9 percent—an increase that was 30 percent higher than the inflation rate (see Figure 1).
While the Inflation Reduction Act provisions limiting Medicare drug price increases will bring substantial relief for Medicare beneficiaries, millions of Americans without these protections continue to struggle to access the medications they need. Congressional leaders understand these limitations and have begun to advance legislation to protect even more consumers from unreasonably expensive drugs: The Lower Drug Costs for Families Act of 2023 (S. 1139), introduced by Sen. Catherine Cortez Masto (D-NV), and the Lowering Drug Costs for American Families Act of 2023 (H.R. 4895), introduced by Rep. Frank Pallone Jr. (D-NJ), are two such examples that would address these excessive price hikes by extending the Inflation Reduction Act’s Medicare inflation rebates to the commercial market. It is critical for Congress to take action to reign in drug price increases that compound Americans’ challenges accessing and affording the medications they need.
It is critical for Congress to take action to reign in drug price increases that compound Americans’ challenges accessing and affording the medications they need.
The author would like to the acknowledge Patients for Affordable Drugs for their data and methodological guidance.