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  • A Senate budget reconciliation bill aims to cut medication costs for millions of Americans and reduce drug spending by the federal government.
  • If the legislation passes, the provisions will be enacted over several years, so beneficiaries may not see changes in their out-of-pocket drug costs right away.
  • Two provisions of the reconciliation bill directly target Medicare beneficiaries’ out-of-pocket drug costs.

With the cost of food, fuel, and other consumer goods continuing to rise, Democrats have set their sights on reigning in the price of one category of goods that has long strained Americans’ wallets: prescription drugs.

The Senate budget reconciliation bill put forward by Senate Majority Leader Chuck Schumer, D-NY, and Sen. Joe Manchin, D-WV, aims to cut medication costs for millions of Americans and reduce drug spending by the federal government.

Most of the legislation, which could be voted on this month, applies to Medicare and its beneficiaries.

It includes provisions allowing the federal government to negotiate the price of certain high-cost medications, caps out-of-pocket costs for Medicare beneficiaries, and penalizes drug makers who increase drug prices faster than inflation.

Because these provisions are part of the budget reconciliation bill, they must directly impact government spending or tax revenue.

If the legislation passes, the provisions will be enacted over several years, so beneficiaries may not see changes in their out-of-pocket drug costs right away.

The reconciliation bill also includes measures to fight climate change — which impacts the health of hundreds of millions of people around the world.

The reconciliation bill contains a provision that would enable the Medicare agency to negotiate the prices for certain costly medications purchased at the pharmacy (Medicare Part D) or administered by physicians (Medicare Part B).

The Medicare Modernization Act of 2003, which established the Part D program, prohibited the agency from negotiating drug prices.

This provision applies to medications and biologicals that have been on the market for several years without competition from generics or similar drugs.

Price negotiation would begin in 2026, with the number of negotiated drugs limited to 10 to 15 drugs each year, then 20 in 2029 and beyond.

The impact of the provision on Medicare beneficiaries’ out-of-pocket costs will depend on which drugs are chosen for price negotiation and how much their price drops.

Ken Thorpe, PhD, professor of health policy at Emory University and chairman of the Partnership to Fight Chronic Disease, is in favor of capping the cost of medications that benefit people with chronic health conditions — which some Medicare Advantage prescription drug plans already do.

“Many Medicare patients are getting drugs for a whole range of chronic diseases at no co-pay or a low cap,” he said. “And it has increased adherence, and we think it reduces overall spending.”

Because some beneficiaries are already paying low co-pays for drugs that could end up being negotiated, their out-of-pocket costs may not change.

“This may not be the kind of thing that a patient going into the pharmacy will notice, because what they’re plunking down on the counter to get the drug won’t change,” said Karen Van Nuys, PhD, executive director of the value of life sciences innovation project at the USC Schaeffer Center for Health Policy & Economics.

However, “on the back end, what it will cost the Medicare system will be less — or should be less — as a result of this,” she said.

The Congressional Budget Office (CBO) estimates that price negotiation will result in $101.8 billion in Medicare savings over 10 years (2022 to 2031).

All of the prescription drug provisions combined are expected to reduce the federal deficit by $287.6 billion during that period, estimates the CBO.

Although the price negotiation provision is focused on Medicare, Van Nuys said people with private insurance may also benefit.

“It could be that pharmacy benefit managers will look at the price that they are getting for a drug in the Medicare market and be able to leverage that into private plans as well,” she said.

Pharmacy benefit managers, or PBMs, negotiate with prescription drug companies on behalf of health insurers, large employers, and Medicare Part D plans.

PBMs are just one of the many intermediaries in the prescription drug market between drug makers and the consumer — others include wholesalers, pharmacies, and health plans.

Van Nuys said some of these players could also end up benefitting from drug provisions in the reconciliation bill.

“This Medicare price negotiation is going to lower the prices that manufacturers get for these drugs,” she said. “But I don’t see anything in the legislation that ensures that those savings are not pocketed by [PBMs and other] intermediaries like they did in the insulin market.”

The legislation would also require drug companies to pay rebates if the price of their drug increases faster than inflation; this applies to both the Medicare and private-insurance markets.

This and the price negotiation provisions are similar to measures passed in November 2021 by the US House of Representatives.

According to an analysis by the Kaiser Family Foundation (KFF), from 2019 to 2020, half of the prescription drugs covered by Medicare saw price increases greater than inflation for that period.

How the inflation cap impacts out-of-pocket costs for people with Medicare or private insurance will depend upon which drugs are affected and how much the price changes as a result of this provision.

The provision may also help keep insurance premiums from rising too quickly because drug costs to the insurer may be lower.

However, Van Nuys said one concern is that drug makers could compensate for the inflation cap by launching new drugs at a higher price.

“If you set your launch price higher, you can continue to raise it [at the inflation rate], but you have a higher base from which to raise it,” she said.

Another concern is that the inflation cap and drug price negotiation could reduce the development of future drugs because drug companies will have less revenue to fund research and development.

But the CBO estimates that 15 out of 1,300 drugs would not reach the market over the next 30 years as a result of the drug provisions in the budget reconciliation bill.

Van Nuys said the CBO’s estimate is just that, an estimate; but more important than the exact number is how people’s health will be affected.

“We don’t know which drugs are not going to come to market,” she said. “Is it going to be the cure for Alzheimer’s, the cure for cancer or the next statin?”

Two provisions of the reconciliation bill directly target Medicare beneficiaries’ out-of-pocket drug costs.

The first would eliminate the 5% coinsurance requirement for beneficiaries who are above the Medicare Part D catastrophic coverage threshold (which is currently $7,050 in out-of-pocket drug costs).

Another provision would add a $2,000 cap in 2025 on out-of-pocket spending for drugs bought at a pharmacy.

If the bill is passed, once beneficiaries had spent $2,000 on medications, they would have no more drug costs for that year.

Thorpe said in terms of protecting patient health, this cap makes sense.

“Unfortunately, the $2,000 cap is still way too high,” he said, “but it’s a move in the right direction.”

These two provisions would benefit up to an estimated 1.4 million Medicare Part D enrollees without low-income subsidies, according to KFF. This includes 1.3 million beneficiaries who were over the catastrophic threshold in 2020.

These two provisions will be especially beneficial for patients taking a single newer high-cost specialty drug, such as for cancer, multiple sclerosis, or hepatitis C.

But beneficiaries taking multiple relatively expensive drugs could also benefit — this applies to many Medicare beneficiaries.

“A typical Medicare patient that’s driving up the medication costs has multiple conditions such as hypertension, diabetes, elevated lipids, either COPD or asthma, and depression,” said Thorpe.

Reducing out-of-pocket costs, though, is not just about saving money.

“We know that when patients have lower out-of-pocket costs, they tend to adhere to their medicines better,” said Van Nuys. “And when they adhere to their medicines better, they have fewer negative health outcomes.”

One provision of the reconciliation bill would eliminate cost-sharing for adult vaccines covered under Medicare. A second would require adult vaccines to be covered for adults enrolled in Medicaid or the Children’s Health Insurance Program (CHIP).

This provision would provide beneficiaries with incomes up to 150% of the federal poverty level with full Low-Income Subsidies. As a result, they would pay no premium or deductible for Medicare Part D and minimal copayments for prescription drugs.

Currently, people with incomes between 135% and 150% of the federal poverty level receive partial Low-Income Subsidies.