How the Inflation Reduction Act will impact Medicare drug prices

The signing of the Inflation Reduction Act in August of 2022 brought some immediate relief for Americans with Medicare prescription drug coverage and will continue to drastically impact drug prices as implementation continues.

Already in effect as of January 2023: a $35 cap per month on insulin for Medicare prescription plan enrollees, Medicare beneficiaries receive recommended preventive vaccines free of charge, and providers who administer qualifying biosimilars receive temporarily increased payments.

The new law requires drug companies to pay a rebate to Medicare if they raise prices faster than inflation. In addition, it is estimated that Medicare will see $98 billion in savings over the next 10 years from negotiated drug prices.

Inflation Reduction Act timeline

The Department of Health and Human Services released a timeline for the next steps toward drug price negotiations.

Early 2023—the process of obtaining public feedback and data collection begins. The Centers for Medicare & Medicaid Services (CMS) will provide opportunities for public engagement with stakeholders through calls, meetings and comment solicitation through email.

Sept 2023—the first 10 Part D drugs selected for 2026 negotiation will be announced

2024—negotiations begin between drug companies and CMS

Aug 2024—negotiations end

Sept 2024—CMS publishes maximum fair prices
Jan 1, 2026—prices go into effect

Similar timelines will occur for the selection of future negotiable drugs. There will be 15 Part D drugs chosen for 2027 pricing, 15 Part B or Part D drugs for 2028 pricing, and finally 20 Part B or Part D drugs for 2029 pricing.

Drugs not covered at this time

Medicare Part D and Part B spending is concentrated on a small share of covered drugs that are high-priced, no competitors or generic/biosimilar options. CMS is limiting the current scope of negotiations to those high-cost drugs as the program begins—leaving certain categories out of the present process:

Drugs that have a generic or biosimilar available
Drugs that are less than 9 years (for small-molecule drugs) or 13 years (for biological products) from their FDA-approval or licensure date
“Small biotech drugs” (until 2029), defined as those which account for 1% or less of Part D or Part B spending and account for 80% or more of spending under each part on that manufacturer’s drugs
Drugs with Medicare spending of less than $200 million in 2021 (increased by the CPI-U for subsequent years)
Drugs with an orphan designation as their only FDA-approved indication
All plasma-derived products