How Medicare beneficiaries will save $1.5 billion after Part D drug negotiations

On Thursday, August 15, the government released the results of the first-ever Medicare drug price negotiations. And the results are pretty significant – the nearly nine million beneficiaries taking these 10 drugs may save $1.5 billion in out-of-pocket costs. Let’s take a look at the results.

Note: Numbers other than prices are rounded to the nearest thousandths. List prices are rounded to the nearest dollar and represent the Wholesale Acquisition Costs (WACs) for the selected drugs based on 30-day supply using CY 2022 prescription fills. Drug companies'’ participation in the Negotiation Program is voluntary; the figures above represent estimates based on continued drug company participation in the Medicare program. Source: CMS

How did we get here?

In August of 2022, the Inflation Reduction Act of 2022 was signed into law. The law made several sweeping changes to Medicare Part D, including capping insulin prices at $35 per month, redesigning the Part D benefit, and empowering Medicare to negotiate drug prices. Some changes, like insulin pricing, were nearly immediate. The Part D redesign was phased in over time. And, Medicare will negotiate the prices of even more drugs through 2029.

What impact will this first round of negotiated prices have?

Throughout 2023, 8.8 million of the 54 million people with Part D coverage were prescribed these drugs to treat the listed conditions. In total, spending on these drugs accounted for $56.2 billion in gross costs to the Part D program or about 20% of all Part D costs. That same year, Part D enrollees spent $18.9 billion in out-of-pocket drug costs, with $3.9 billion of that attributed to these 10 drugs.

Based on CMS estimates, if these prices had been in effect through 2023, the Medicare program would have saved $6 billion, meaning a 22% drop in net spending.

And, when these negotiated prices go into effect, CMS expects Part D enrollees will save an estimated $1.5 billion in out-of-pocket costs. This analysis does account for the Part D redesign, which puts a $2,000 cap on a beneficiary’s out-of-pocket drug costs beginning in 2025.

When and how will Medicare beneficiaries see these prices take effect?

These prices will go into effect on January 1, 2026. All participating drug companies are required to ensure the negotiated price is made available to consumers, and everyone involved in getting drugs to those consumers.

The Inflation Reduction Act also mandates that every Part D plan include these drugs in their formularies. And, CMS will use its regular formulary review process to watch out for any practices that may get in the way of access to these drugs.

Will these prices ever change?

Well, yes. These prices will only be in effect for 2026. For the years to follow, CMS will pin price increases to the Consumer Price Index – a common measure of inflation. CMS and manufacturers might also renegotiate a price at any point, with that price going into effect on January 1 of the following year.

What’s the bottom line for Medicare beneficiaries?

In 2026, any beneficiary taking these drugs should have a little extra cash in their pocket. The $2,000 cap on Part D drugs may help too – assuming government programs to stabilize premiums do their job. And, that little bit of cash can go a long way to offsetting other health costs, other household expenses, or treating the grandkids to another ice cream cone.