Medicare will negotiate drug prices. Big Pharma is really upset. AARP is really happy. What’s the REAL story?

Joe Paduda

Briefly: One of the key parts of the Inflation Reduction Act authorized Medicare to negotiate drug prices for 10 medications. Those 10 meds have been identified, and the howls of protest from Big Pharma are deafening: "But, our profits!!!!!"

Pharma is the most profitable sector in the economy, with a gross profit margin double that of non-pharma companies.

Implications: 

• For taxpayers, the Congressional Budget Office reports taxpayers will save $160 billion by reducing how much Medicare pays for drugs.
• For millions of Medicare recipients, drug prices and out-of-pocket expenses for those 10 drugs will drop by thousands of dollars. Seniors currently pay up to $6,497 in out-of-pocket costs per year for these meds (Due to the Inflation Reduction Act, starting in 2025 Medicare beneficiaries’ annual out-of-pocket drug costs will be capped at $2,000).
• For payers, the picture is pretty very complicated. Netting it out, “[T]hese steps would lead to a higher MFP (maximum fair price) and less or no impact on the drug’s ... commercial net prices" (after rebates).

Lest you feel sorry for Big Pharma, you should know that the 10 medications are “older drugs and drugs that have really been blockbusters in the Medicare program. So the companies that have made these products have really reaped handsome profits from those drugs for many years, before they’re even eligible for negotiation.”

Oh, and about Pharma’s complaint that this will hamper innovation? Experts disagree. Overall changes to Medicare’s Part D drug program “will probably have a positive impact on drug innovation, especially in areas that address the unmet health needs of high-cost Medicare beneficiaries.”

Joseph Paduda is co-owner of CompPharma, a consulting firm focused on improving pharmacy programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.