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Medicare and The Prescription Drug Industry in the U.S (2024)

Writer: Bruins for Business Health at UCLABruins for Business Health at UCLA
Apr 25, 20244 min read
Jessica Wang

Introduction

A study on 2018’s International Prescription Drug Price Comparisons (Mulcahy, 2021) revealed that drug prices in the United States were substantially higher than those in the 32 countries compared, at a rate of up to 256% on average all throughout. The disparity is seen more drastically in the case of brand-name originator drugs. This study has been quoted when justifying changing policies that target the future growth in drug spending and the current evaluation of the financial burden of prescription drugs on the U.S. healthcare system. 


The consumption of prescription drugs is also projected to increase, as the American population of 65 years and over increases. Current projections indicate a possible growth from 58 million in 2022 to 82 million by 2050 (a 47% increase). Meanwhile, the 65-and-older age group’s share of the total population is projected to rise from 17% to 23%. (Population Reference Bureau, 2024). This is also considering nearly nine in ten (89%) adults 65 and older currently take prescription drugs, and are also more likely to be taking multiple simultaneously (KFF, 2019). 


While a majority have Medicare coverage through Part D, the KFF health tracking poll indicates an average of 76% of older adults still deem these costs unreasonable. Many of them are also in favor of the current federal negotiations for drug prices and the capping of out-of-pocket spending under Medicare Part D, which covers age 65 and above older adults, and certain eligible disabilities.


The Inflation Reduction Act (IRA)

Recent legislative changes involve the Inflation Reduction Act (IRA) passed by the Senate on August 7, 2022. The Act contains provisions affecting Medicare and the healthcare landscape by enabling the Health & Human Services (HHS) Secretary to negotiate the prices of 10 prescription drugs in 2026, and another 15 drugs in 2027 and 2028 (National Academy of Social Insurance). These drugs are described as being single-source brand-name drugs or biologics without generic or biosimilar competitors. (KFF, 2024)  It also limits out-of-pocket costs for prescription drugs for Medicare Part D beneficiaries to $2,000 annually, a decrease from the current $7,050 limit. Co-insurance and certain vaccination costs will also be eliminated. The Act also limits monthly cost sharing for Insulin to more than $35, taking effect January 1, 2023, for insulin covered under Part D.


To help more Americans understand and access these benefits, HHS launched LowerDrugCosts.gov, a resource hub to ensure people with Medicare are aware of all the ways beneficiaries may see prescription drug savings thanks to the Inflation Reduction Act. (HHS, 2024)





Who is opposing these changes

Recently the industry lobbying group PhRMA (Pharmaceutical Research and Manufacturers of America) appealed its loss at the Texas Federal court as it challenges the legality of the new Medicare price negotiations. This happened the same week as Bristol Myers Squibb, Novo Nordisk, Novartis, and Johnson & Johnson were set to lay out their arguments against the IRA at a joint hearing (Fierce Pharma, 2024).


PhRMA claimed that government pricing negotiations violate due process provisions in the Fifth Amendment. The group also argued that the law's excessive fines for companies that do not comply violate the Eighth Amendment (Fierce Pharma, 2024).


Possible changes in the Healthcare and Pharma landscape

The law sets a nine-year exemption period for "small-molecule" drugs, mainly pills, while "large molecule" biologics, generally injections or infusions, are protected from negotiation for 13 years (Reuters, 2023). Possible repercussions in the pharmaceutical landscape may include disincentivizing the investment in those convenient small-molecule drugs as the different exemption periods make complex biologic therapeutics more attractive in the financial scene. 


These unintended consequences may direct where future investments in the healthcare and particularly, pharmaceutical industries lie. However, manufacturers may face only a muted financial impact in the near term. As other factors such as patent expirations, strong competition, and the fact that these specific medications may not be significant contributors to the companies’ profits were preexisting. For example, Merck’s Type 2 diabetes drug Januvia could lose exclusivity in mid-2026 – only a few months after the negotiated prices go into effect (CNBC, 2023). These can not be said as later projected prescription price negotiations advance into specialized medications under Medicare Part B.


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