Yale experts discuss impact of Medicare price-negotiation legislation
Following the announcement of the 10 drugs for which Medicare is authorized to negotiate prices, Yale experts in healthcare shared their thoughts.
Tim Tai, Senior Photographer
As the federal government announced an initial list of medications up for Medicare to negotiate, healthcare experts at Yale are optimistic that these policy changes could make medications more accessible.
On Aug. 30, the Biden administration publicly announced a list of 10 drugs — the costs of which Medicare can now negotiate in order to reduce Medicare spending and out-of-pocket payments for patients. This modification to Medicare is a component of the Biden Administration’s 2022 Inflation Reduction Act. The new modifications allow Medicare to engage in direct negotiations with pharmaceutical manufacturers in order to secure price reductions on medications procured through Part D of the Medicare program, which pertains to the segment of Medicare that oversees drug coverage for beneficiaries.
Experts at Yale are optimistic that the policy change could be transformative for patients — cutting pharmaceutical expenses and generating substantial benefits for Medicare beneficiaries in New Haven and throughout the nation.
“The Inflation Reduction Act and having multiple components in it to actually control, and to lower the price of prescription drugs is really historic and potentially life changing for many of our patients,” Reshma Ramachandran, an assistant professor of medicine at the School of Medicine, said. “It also gives the government a little bit more authority to actually negotiate with more knowledge in place like having transparency of research development costs and other sorts of input costs.”
Part D of the Medicare program was launched by the Bush administration in 2003 with the aim of lowering medication expenses for individuals. However, during the inception of Medicare Part D, legislators made compromises that outlawed the Centers for Medicare and Medicaid Services from directly negotiating with pharmaceutical companies.
According to Ramachandran, that led to a spike in prescription drug prices.
“Afterwards, because Medicare was not able to negotiate drug prices for our patients, prices rose year after year and became unaffordable,” Ramachandran said. “There hasn’t been a day really where we don’t hear from our patients that they’re not able to pick up a medicine from the pharmacy counter that we prescribe them because of price.”
Given the large number of people on Medicare, these policy initiatives aim to cut government spending on drug prices in the coming years.
Yale experts agreed that the IRA also seeks to lower high drug costs for patients: enabling beneficiaries to use their limited financial resources towards other expenses, while also ensuring uninterrupted access to critical medications.
“Seniors on Medicare, oftentimes on fixed incomes … would actually be able to use their money, for a multitude of things: not just for prescription drugs, but also for food or housing,” Ramachandran said. “And in fact, more often than not that’s what we saw in recent years because that wasn’t in place. A lot of seniors are actually skipping their medicines or not taking their medicines as prescribed because they couldn’t afford them and they had other necessities to pay for.”
According to Omar Qureshi ’20 MED ’25, a health policy researcher who focuses on the healthcare marketplace in the United States, Medicare has leverage on drug companies by bringing entire patient markets to pharmaceutical companies.
Qureshi explained that before the Inflation Reduction Act, the price of each prescription drug was determined by pharmacy benefit managers: a third party middle-man who served as an intermediary between drug manufacturers, pharmacies and health plan sponsors such as Medicare.
“The job of the pharmacy benefit manager is they negotiate drug prices with the pharmaceutical companies, and the reason that they exist is they’re able to pull together negotiating power,” he told the News.
Through direct negotiations, the new policy aims to eliminate intermediaries and directly set nationwide Medicare drug prices with pharmaceutical companies themselves. Medicare also would not have to pay fees to pharmacy benefit managers.
“Ultimately, the only way the Inflation Reduction Act reduces expenditure, both on Medicare’s part and on patients’ parts is if they’re able to negotiate better than the pharmacy benefit managers are able to negotiate today,” Quarish said. “That is the underlying assumption … that they’re trying to test with this expensive experiment. Essentially, can we do it better than the private sector?”
The initial list of medications Medicare set for price negotiation was based on an analysis conducted by the Department of Health and Human Services, which identified prescriptions with the largest overall costs and those commonly prescribed to Medicare patients for life-threatening illnesses.
For instance, Eliquis, a drug used to prevent and treat blood clots, is one of the 10 medications on the initial list. Over the course of the previous year, 3,706,000 Medicare beneficiaries relied on Eliquis, resulting in a total Medicare payout of $16,482,621,000, or $4,448 per patient.
But researchers also believe that drug manufacturers may react to this shift in health policy by increasing the launch price of new medicines to hedge against the reduced, negotiated costs.
“One of the biggest drawbacks to the legislation is that it does not impact launch prices for prescription drugs,” Ramachandran said. “There’s been plenty of research our group and others have done that has actually shown that launch prices for prescription drugs have risen pretty astronomically and across different therapeutic areas. So our patients are really feeling the brunt of that.”
According to Anna Kaltenboeck, a health economist and the head of prescription drug reimbursement at ATI Advisory, a consulting firm that focuses on health care for older adults, the IRA’s revisions to Medicare Part D reduces the amount of money beneficiaries must pay out-of-pocket to receive their prescription to $2,000 per year on average.
Until now, there has never been a restriction on the amount of money out-of-pocket patients could pay for certain drugs, she explained.
“Capping out-of-pocket patient costs, people don’t have to spend more than $2,000 a year for their drugs because currently under current law, Medicare patients don’t have an out-of-pocket cap,” Kaltenboeck said. “So some of them spend and spend and obviously it’s like a huge impact for them.”
However, several lawsuits, including one from the U.S. Chamber of Commerce, have been filed to prevent more modifications to Medicare’s price setup.
But Kaltenboeck said she is still convinced that direct negotiations are a net-positive result.
“The industry is sort of arguing that there’s not going to be as many drugs and new drugs that come to the market. But what we see in practice, based on prior examples, suggests that’s not true,” Kaltenboeck told the News. “I’m actually relatively confident that the law is relatively pro-innovation because it’s going to force companies to go invest in new drugs.”
The Yale New Haven Health System accepts Medicare coverage for those in the New Haven community.