Negotiations Required

Let’s take a trip back to 2003 and revisit some of the exciting developments of that year. Time Magazine’s best inventions list from 2003 features some now-obsolete items, like MySpace, once the king of social networks, and Royal’s $100 CD-Rom Shredder, which could shred a CD in just four seconds, leaving no chance for data recovery. In  healthcare, the year introduced FluMist, the first-ever nasal spray flu vaccine, while Europe welcomed Cialis, a new competitor to Viagra.

But perhaps the biggest development was the signing of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA). The MMA established the optional outpatient prescription drug benefit, “Part D,” which became available in 2006.

Fast forward twenty-one years, and we’re witnessing another major shift in the MMA—a game-changer that promises to lower prescription drug costs for Medicare beneficiaries and reduce federal drug spending: the advent of Medicare drug price negotiations!

Late to the Party
Negotiating prices is as American as apple pie, so why has Medicare taken so long to join the party? The answer, unsurprisingly, lies with the drug companies.

Before 2000, pharmaceutical companies fiercely opposed any plan to include prescription drugs as a basic benefit in Medicare. They feared it would lead to federal regulation of drug prices or bulk purchasing, giving the government too much bargaining power. They also worried that private insurers would demand similar discounts as Medicare.

But then, the pharmaceutical industry had a bit of a revelation. They realized their real enemy wasn’t a Medicare drug plan itself. In fact, a plan could actually boost drug sales. They just needed to make sure the government couldn’t negotiate drug prices, unlike other federal agencies like the Department of Veterans Affairs.

As Congress debated what would become the Medicare Modernization Act of 2003 (MMA) with its Part D  benefit, pharmaceutical companies lobbied hard to ensure the government wouldn’t have the power to negotiate drug prices. Their efforts paid off. Drug company lobbyists successfully inserted a crucial sentence into the MMA legislation, known as the “noninterference clause,” which explicitly prevents the government from negotiating or setting drug prices.

From No Deals to Big Savings
In 2022, President Biden signed the Inflation Reduction Act (IRA), marking a major shift in prescription drug policy. This landmark law not only set a $2,000 cap on out-of-pocket drug costs for Medicare beneficiaries starting in 2025, but also overturned the long-standing noninterference clause. For the first time, Medicare could negotiate drug prices, starting with 10 drugs in 2024. Pharmaceutical companies pushed back hard, challenging these negotiations in court, but their efforts were in vain.

This week, as Medicare wrapped up its 2024 drug price negotiations, it was clear that, as 16.2 million union workers have long known, negotiations really do work!

The deals struck for ten drugs resulted in huge savings—over $1.5 billion for Medicare beneficiaries and $6 billion for taxpayers. With price reductions ranging from 38% to 79%, these cuts will take effect in 2026.

Looking Ahead
In 2025, Medicare will expand its price negotiations to cover 20 drugs, thanks to the IRA. This move is expected to bring significant savings for both Medicare beneficiaries and taxpayers. But what if former president Donald Trump is elected in November?

While many experts believe future administrations would struggle to dismantle or ignore Medicare drug price negotiations without Congressional action, a new president could still use executive orders to scale back the negotiations. Additionally, Project 2025’s drug pricing agenda aims to repeal the IRA altogether.

Get ready for plenty of “drug talk” as the November election approaches!

Happy reading,

Enjoy the weekend!

Best,
Suzanne
Suzanne Daniels, Ph.D.
AEPC President
P.O. Box 1416
Birmingham, MI 48012
Office: (248) 792-2187
Email: [email protected]