In the U.S., several key legislations have a profound impact on government pricing of drugs, especially within public health programs like Medicare and Medicaid. These laws establish the framework for negotiating drug prices, determining reimbursement levels, and ensuring access to affordable medications for beneficiaries. Here’s an overview of some critical legislations and their roles:
1. Medicaid Drug Rebate Program (Omnibus Budget Reconciliation Act of 1990)
This legislation requires drug manufacturers to enter into a national rebate agreement with the Secretary of Health and Human Services as a condition for states to receive federal funding for the manufacturer's drugs furnished to Medicaid patients. Manufacturers must provide rebates on outpatient drugs paid for by Medicaid, which are based on either the Average Manufacturer Price (AMP) or the best price available to most favored customers, with additional incentives to provide deeper discounts for generic drugs.
2. 340B Drug Pricing Program (Veterans Health Care Act of 1992)
The 340B Program mandates that drug manufacturers provide outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices. The aim is to enable these entities to "stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services."
3. Medicare Prescription Drug, Improvement, and Modernization Act of 2003
This act established Medicare Part D, which provides a prescription drug benefit to Medicare beneficiaries. Although this law does not allow Medicare to negotiate drug prices directly (except as newly amended by the Inflation Reduction Act of 2022), it set the stage for competitive bidding among private insurance plans that administer Part D benefits, indirectly influencing drug pricing.
4. The National Defense Authorization Act (NDAA) of 2008 included several provisions that have implications for government pricing of drugs, particularly in how it impacts TRICARE, the health care program serving U.S. military service members, retirees, and their families. One of the key provisions related to pharmaceuticals included in the NDAA of 2008 is related to the procurement and pricing of drugs for TRICARE. Section 703 - Retail Pharmacy Program: One of the significant changes made by the NDAA of 2008 was the formal inclusion of retail pharmacy networks within the TRICARE mandatory drug rebate program. Prior to this amendment, drug manufacturers were not required to provide federal pricing limits or rebates for prescriptions filled at retail pharmacies under TRICARE. The NDAA mandated that the prices paid by TRICARE for prescription drugs through its retail pharmacy program must be no higher than the Federal Ceiling Price (FCP), which is the price paid by the Department of Veterans Affairs (VA).
5. Patient Protection and Affordable Care Act (PPACA) of 2010
The PPACA made several significant changes to how prescription drugs are priced and paid for in government programs. It expanded Medicaid eligibility and increased the mandatory Medicaid rebates that manufacturers must pay. The PPACA also closed the Medicare Part D "donut hole," providing significant cost savings on prescription drugs for Medicare beneficiaries.
6. Best Pharmaceuticals for Children Act (BPCA) and Pediatric Research Equity Act (PREA)
While not directly related to drug pricing, these laws impact market exclusivity periods, which can indirectly influence drug prices. They provide incentives for pharmaceutical companies to conduct studies on pediatric populations, offering additional market protection periods in return for this research.
These legislations collectively aim to control drug prices, ensure broader access to medications, and maintain a balance between fostering pharmaceutical innovation and keeping healthcare costs manageable for government programs and beneficiaries. Each piece of legislation impacts different aspects of drug pricing and has been subject to political and legal scrutiny, reflecting the complex interplay between healthcare policy, industry interests, and consumer protection.
There are also legislations at state level such as the Program of All-Inclusive Care for the Elderly (PACE) in Pennsylvania.
7. More recently, The Inflation Reduction Act (IRA) of 2022 represents a significant legislative effort aimed at addressing various issues, including healthcare costs, particularly those associated with prescription drugs in Medicare. IRA of 2022 allows Medicare to negotiate prices directly with pharmaceutical companies for certain high-cost drugs, starting in 2026. It also caps the out-of-pocket spending for Medicare beneficiaries and imposes penalties on manufacturers that increase drug prices faster than inflation. Here are key components of the IRA that directly impact drug prices:
A. Medicare Drug Price Negotiation
Perhaps the most groundbreaking aspect of the IRA is the authorization for Medicare to negotiate prices directly with drug manufacturers for certain high-cost drugs. Historically, Medicare was prohibited from engaging in such negotiations. The IRA stipulates a phased approach:
Starting in 2026, Medicare will negotiate prices for 10 drugs (from a list to be determined based on spending and other factors).
This list will expand in subsequent years, adding more drugs to the negotiation table.
B. Caps on Price Increases
The IRA includes provisions to discourage excessive yearly price increases for drugs covered under Medicare. If drug manufacturers raise their prices faster than the rate of inflation, they must pay the difference back to Medicare. This provision aims to stabilize drug costs and is effective starting in 2023.
C. Out-of-Pocket Cost Caps for Medicare Beneficiaries
The IRA introduces several measures to reduce out-of-pocket expenses for Medicare beneficiaries:
A cap of $2,000 on annual out-of-pocket drug costs starting in 2025.
The elimination of cost-sharing for vaccines covered under Medicare Part D.
Phased reduction in the beneficiary coinsurance rate in the catastrophic coverage phase of Medicare Part D from 5% to 0% by 2024.
D. Insulin Cost Caps
The IRA caps insulin costs at $35 per month for Medicare beneficiaries, which started in 2023. This measure aims to make diabetes management more affordable for a significant segment of the population.
E. Enhanced Drug Rebates
The law increases penalties for drug companies that raise prices faster than inflation for drugs sold to Medicare. It also extends rebates for drugs purchased by beneficiaries who receive both Medicaid and Medicare, reducing costs for these dual-eligible individuals.
The IRA's provisions are expected to have several impacts:
For Consumers: Particularly for Medicare beneficiaries, the direct negotiation and cost caps should lead to reduced out-of-pocket expenses, making prescription drugs more affordable.
For Pharmaceutical Companies: These entities might face financial pressures due to caps on price increases and requirements to negotiate drug prices with Medicare. The potential reduction in revenue might impact how much companies can or are willing to invest in research and development.
For Medicare: The program is likely to see cost savings from these provisions, which could help sustain the program financially over the long term.
Market Dynamics: The pharmaceutical market may see shifts as companies adjust their strategies to align with new regulations, possibly affecting the availability and introduction of new drugs.
The Inflation Reduction Act represents a major shift in how drug prices are managed in the U.S., particularly within Medicare. Its long-term effects will depend on implementation details, responses from pharmaceutical companies, and potential legislative adjustments in the future.
