President Joe Biden has sought to bring down drug prices through provisions in the Inflation Reduction Act (IRA), but prices since its passage have increased heavily and could increase even more as drug manufacturers search for ways to make up costs, experts told the Daily Caller News Foundation.
The Biden administration announced on Dec. 14 that 48 Medicare Part B drugs raised their prices faster than the rate of inflation, triggering automatic rebates to the government insurance program of payments made over the inflation rate. Drug prices are already increasing at faster rates than in recent years, but following the decrease in profits from Medicare, drug manufacturers could raise prices on individuals with private insurance or even raise starting drug prices to offset costs, according to experts who spoke to the DCNF. (RELATED: Americans Are Turning To Even More Financing Options As Savings Run Dry)
“The rebate policy in Medicare is going to incentivize drug manufacturers to increase the prices of medications for people in private health insurance,” Robert Moffit, senior research fellow at the Center for Health and Welfare Policy at the Heritage Foundation, told the DCNF. “The impact on Medicare, the big impact, will be that the combo of the rebate policy and the price control regime is going to mean that for Medicare beneficiaries, their health insurance premiums through Part D and Part C are going to be lower.”
The mandatory rebates for Medicare come from the Prescription Drug Inflation Rebate Program through the Department of Health and Human Services(HHS), which was empowered by President Joe Biden’s 2021 IRA, which added $750 billion in new spending, according to the Centers for Medicaid and Medicare Service.
“But regardless if the drug manufacturer is being forced to offer the drug below the market price, a huge program like Medicare, they’re going to have to stop their losses,” Moffit told the DCNF. “They’re going to have to stop their losses, and the only way they can do that is increased prices in the private market.”
During the Trump administration from January 2017 to January 2021, prices for medical care commodities, which cover prescription drugs, nonprescription drugs and medical equipment, rose 3.3%, while prices have risen 8.8% so far during the Biden administration, starting from January 2021 to November, according to the Federal Reserve Bank of St. Louis. Since August 2022, when the IRA was passed, medical care commodity costs have jumped 5.1%.
The cost private insurers pay has historically been far greater than Medicare, spending 222% more than the government health care program in 2018 and 235% in 2019, according to a study from the Rand Corporation. In 2020, private insurance hospital facility-only costs averaged 224% higher than Medicare, while associated services like physician fees were 163% higher.
Big Pharma has been used to getting its way for too long – suppressing competition to keep prices high.
It says it needs that extra revenue to develop cutting-edge drugs.
But studies show Big Pharma lately spent more on stock buybacks and executive pay than on research. pic.twitter.com/yevCc1MLFg
— President Biden (@POTUS) December 15, 2023
Michael Cannon, director of health policy studies at the Cato Institute, sees a different way drug manufacturers will adjust for the loss of income from the Medicare rebates, and that would be for the companies to set the starting price of new pharmaceuticals higher, avoiding penalties for raising prices, rather than shifting costs onto individuals with private insurance.
“The new ‘rebate’ provisions of the Inflation Reduction Act are really just reductions in the subsidies drug makers receive from Medicare,” Cannon told the DCNF. “The threat of those subsidies will encourage drug makers to set higher launch prices, which won’t necessarily increase prices for private purchasers. Drug makers’ revenue-maximizing strategy will continue to demand the revenue-maximizing price from each market segment, and a higher launch price does not necessarily increase the revenue-maximizing price they charge private payers.”
In another move to bring down drug prices, the Biden administration announced in August a list of ten drugs that it would be coercing into negotiations over prices for Medicare. The negotiations are in their early stages and will not go into effect until 2026, but pharmaceutical companies that refuse to negotiate with the federal government will be taxed up to 95% on sales as a penalty.
In 2021, the United States as a whole spent $4.26 trillion on health care, with hospital care taking up 31.1% of that, followed by physician services at 14.9% and other personal health care at 16.0%, according to the American Medical Association. Prescription drugs made up 8.9% of total spending.
“There are reasons why Medicare and Medicaid have long histories of paying excessive prices for drugs: everyone in those programs is paying with someone else’s money, and nobody spends someone else’s money as carefully as they spend their own,” Cannon told the DCNF. “That dynamic. Has. Not. Changed. So these latest attempts to contain drug prices in Medicare will most likely fail, just as past attempts have. Medicare absolutely should pay less for prescription drugs. But it will probably continue to pay excessive prices — because that is its nature.”
The White House did not immediately respond to a request for comment from the DCNF.
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