Major changes are coming to the U.S. healthcare system now that the Democrats’ Inflation Reduction Act has a clear path to President Joe Biden’s desk.
The sweeping bill will for the first time allow the federal government to negotiate the prices of several expensive prescription drugs with manufacturers to push costs down for seniors enrolled in Medicare. It also includes guardrails for Medicare beneficiaries that will compel drugmakers to pay rebates if they raise the prices of drugs faster than the rate of inflation.
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Democrats will also expand for three years the pandemic-era Obamacare subsidies put in place by the Biden administration that were slated to expire this year. The subsidies that were implemented were especially helpful for people making between 400% and 600% of the federal poverty line, who would not otherwise be eligible. Extending the subsidies will prevent plan premiums from rising across the board next year for virtually all 13 million subsidized enrollees.
Democrats had been seeking for years to have the government negotiate the prices of drugs directly. Although the measures in the Manchin-Schumer bill are pared back significantly from what liberal members of the party sought at the outset of Biden’s tenure, they are a success in overcoming opposition from the influential pharmaceutical industry and Republicans in Congress. The revenue garnered by allowing direct Medicare-to-drugmaker negotiations is expected to save the federal government billions of dollars, offsetting the costs of other reforms in the bill.
The costliest drugs that have been on the market for nine or more years, as well as biologics, a class of drugs made from living organisms, that have been on the market for at least 13 years, would be eligible for negotiation. The Department of Health and Human Services secretary will have the authority to determine which prescription drugs will be included in negotiations.
Only a fraction of Medicare’s prescription drug spectrum will be involved in negotiations — 10 of the most expensive and widely used drugs covered in Part D in the first year, 2026, up to 15 the following year, and up to 20 in 2029 and later years. The HHS secretary has not released a detailed list of prescription drugs that will be included in negotiations. But the investment firm SVB Securities told the Financial Times that the list would likely include AbbVie’s blood cancer drug Imbruvica, Amgen’s rheumatoid arthritis drug Enbrel, and AstraZeneca’s cancer drug Tagrisso.
The bill’s passage marks a rare defeat for the highly influential pharmaceutical industry, which has collectively spent roughly $187 million on lobbying efforts this year. The industry’s powerful trade association, Pharmaceutical Research and Manufacturers of America, or PhRMA, has been leading a pressure campaign urging Congress to abandon negotiation provisions, arguing that setting price controls on widely used drugs would discourage investment in the development of innovative new treatments and cures for serious diseases such as Alzheimer’s and cancers.
The bill would inadvertently keep about 15 new treatments from entering the market over the next 30 years, the Congressional Budget Office said.
Despite fierce resistance to the negotiation provision, pharmaceutical companies will be forced to comply or face a huge hit to their bottom line. Companies that refuse to participate will face an excise tax of up to 95%.
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The bill also caps out-of-pocket drug spending for beneficiaries in Medicare Part D, the program’s prescription drug benefit, at $2,000 annually. The yearly cap will help roughly 1.4 million Medicare Part D enrollees, the Kaiser Family Foundation estimated.
