Celebrating the Inflation Reduction Act One Year On.
Last week we talked about the environmental provisions of the Inflation Reduction Act. This week, let’s talk about the impact on healthcare. From a budget perspective, the savings generated by cutting Medicare costs are put to good use paying for IRA provisions. From a human perspective, Medicare patients receive much-needed relief from increasingly burdensome prescription drug costs.
Insulin is the star of the show—the IRA capped costs for senior citizens at $35 a month, resulting in hundreds of dollars in monthly savings for some seniors. Then, in his State of the Union address in March, President Biden challenged the pharmaceutical industry to match that pricing for ALL diabetes patients—and Eli Lilly immediately responded by capping costs at $35 for everyone.
Pharmaceutical companies used to abide by a social compact—they would develop drugs and get temporary market exclusivity to recoup their investment after which they’d make the drug available to generic drug makers so everyone could afford them. About 80% of prescriptions written are for generic drugs. If you take a cholesterol-lowering drug or a blood pressure medication, chances are you are paying very little for it.
That social compact started to break down with the invention of a very important class of drugs—biologics—which include insulin. Much more difficult to make and usually injectible, biologics bring massive benefits to patients who need them—at a cost. Since use of them is not as widespread as something like a cholesterol drug, insurance companies and Medicare have generally covered them, but often with a significant copay. These “specialty drugs” skew health care costs higher and even though they accounted for about 2% of all prescriptions, they represented 50% of total drug spending in 2021. These profitable drugs have encouraged companies to try and protect their patents and prevent the introduction of lower cost competitors into the US marketplace, extending marketplace exclusivity for years and basically giving them a monopoly.
Making matters worse for patients, Medicare is not allowed to negotiate prices directly with drug manufacturers thanks to the drug company lobby. Congress barred Medicare from negotiating and lawmakers insisted the job be done by private insurance companies. The result? Insurance companies and pharmaceutical benefits managers receive a rebate from the drug companies off the list price of the drug. So while you may pay the full price, the insurance companies may only reimburse the discounted price. While patients’ out-of-pocket costs go up every year by 5%-10%, the insurance companies’ only rises between 0%-3%. From 2010-2020, drug prices rose three times faster than inflation. Further, AARP recently reported that list prices of the 25 brand-name prescription drugs that Medicare Part D spends the most on have, on average, more than tripled since these medications came on the market. The winner? Lantus, a derivative of insulin, with dosing convenience, introduced in 2000. Its price has increased by 739% since then. Many, many, many patients will do just fine with plain old, $35 a month insulin, first introduced 40 years ago.
Welcome to the crazy world of drug pricing, US style! In what other sector of the economy is the largest customer unable to negotiate prices from a supplier? US patients pay far more for our drugs than patients do in other countries.
This chart purports to explain how it all works, but it seems just as confusing as the process is in practice.
Bottom line: When it comes to your prescriptions, you are paying MORE and insurance companies are paying LESS.
The great news: The IRA tackles this issue in three ways: 1. Allowing the Secretary of HHS to negotiate Medicare prices for selected medications; 2. Introducing Medicare rebates for drug prices that rise faster than inflation, for a potential savings projected to reach $288 billion over a 10-year period. The list of the first 10 drugs subject to price negotiations with Medicare will be released in early September; 3. Capping out of pocket expenses for Medicare Part D drugs at $2000 per patients, starting in 2025.
Before you start feeling warm and fuzzy about the pharma industry, you should know that they immediately cried “foul.” Merck and Bristol Myers Squibb, each with a large footprint in New Jersey, have filed suit against the government in a case that will likely end up in the Supreme Court.
The takeaway: The U.S. pharmaceutical industry is a big driver of our economy and has produced many life-saving and life-improving drugs. We are global leaders in drug discovery, and it’s important to preserve that—along with the high-paying jobs the industry provides. But playing shell games with patents and hitting patients with drug-pricing schemes that cause the costs of prescription drugs to rise three times faster than inflation over the last decade is unfair, and unsustainable.
Perhaps the industry will step up and propose measures that would produce the same—or better—savings for patients than those that the IRA has provided. Until then—let’s savor this victory for patients!
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