Is cost-shifting a concern after Medicare drug price negotiation? 

As a result of the Inflation Reduction Act, Medicare is negotiating directly with drug manufacturers on the price of 10 drugs. The negotiated prices are intended to go into effect January 2026. The list of Part D drugs that may be negotiated is expected to grow by 15 in 2027 and another 15 in 2028 (including drugs covered under Part B), and up to 20 more drugs for each year after that.

The current list of 10 drugs, released by the Federal government on August 29, includes high expenditure, single source Part D drugs without generic or biosimilar competition and together accounted for over $50 billion (or about 20%) of Medicare Part D gross (not including rebates) covered costs for the year that ended May 31, 2023. It is worth noting that many of these drugs have patents expiring or likely to expire by January 1, 2026, which could reduce the potential impact of 2026 Medicare negotiations.

Pharmaceutical manufacturers and trade associations have filed lawsuits claiming this action is unconstitutional. Depending on the outcome and judicial process, these lawsuits have the potential to slow the initial timeline.

While it is assumed these negotiations will benefit Medicare, it is too soon to determine if they will benefit, or potentially harm, the commercial pharmaceutical drug price environment. It’s possible that pharmaceutical manufacturers may attempt to recoup any losses in Medicare revenue. Although, it is not clear from what source and by what magnitude.

The prescription drug landscape continues to be one of the most dynamic environments in the employer healthcare space (emergence of GLP-1s, Humira biosimilar entrants, recent federal and state legislative changes affecting insulin pricing, etc.). With Medicare now negotiating prices directly, this is yet another factor employers will be called upon to monitor regarding its impact on their healthcare offering.