The Inflation Reduction Act: The Impact of Medicare Negotiation of Prescription Drug Prices on Hospitals and Health Systems
By Ken Perez, vice president of healthcare policy and government affairs, Omnicell, Inc.
In August, H.R. 5376, the Inflation Reduction Act of 2022 (IRA), was passed via partisan votes by both chambers of Congress and signed into law by President Joe Biden. Senate Majority Leader Chuck Schumer (D-N.Y.) described the $739 billion climate, tax and health bill “as one of the defining legislative feats of the twenty-first century,” and Biden similarly touted the IRA as “one of the most significant laws in our history.”
While its climate change provisions captured top billing, the IRA is also arguably the most impactful health legislation since the Patient Protection and Affordable Care Act of 2010.
Hospitals and health systems have long advocated for lower prescription drug prices. In March, in a statement to the Senate Finance Committee, the American Hospital Association contended that prescription drug price inflation constituted “an urgent need to lower drug prices in Medicare.” The AHA statement advocated for increased competition and innovation, greater drug pricing transparency, inflation-based rebates for Medicare drugs, and protection of the 340B Drug Pricing Program. However, the hospital association stopped short of advocating for Medicare negotiation of prescription prices.
Details about Medicare negotiation of prescription drug prices
As the centerpiece of the IRA’s various drug pricing reforms, Medicare is allowed to “negotiate” what it will pay for many single-source branded drugs that account for the highest total expenditures for Medicare. In practice, Medicare will be able to dictate those prices. Starting next year, Medicare will negotiate directly with pharmaceutical companies to set the maximum fair price (MFP) for certain prescription drugs, with application of the negotiated prices starting in 2026 for 10 negotiation-eligible drugs from Part D.