Some Good News on Drug Pricing, More to Be Done

Last week’s Consumer Price Index release from the U.S. Bureau of Labor Statistics included some good news on prescription drug costs—showing a 3.1% decrease in prices from a year ago. This is the steepest year-over-year drop since 1963. And although some have attempted to wholly attribute the change to a specific subset of policy changes introduced in the past couple of years, experts note that a variety of factors have likely contributed to the latest numbers. Among the policy and market-based shifts that have likely shaped this change is the market entry of lower-cost generic and biosimilar products for high-cost drugs and the negotiation authority granted to Medicare in the Inflation Reduction Act (IRA).

This is the steepest year-over-year drop since 1963.

The index measures the amount pharmacies are paid for medications. It does not make distinctions between payers, so neither directly measures out-of-pocket costs nor is a Medicare-specific metric. Nevertheless, the scale of Medicare’s purchasing power means that the new negotiated prices for the 10 medications first subject to IRA negotiation that came into effect in January “likely made an impact on aggregate prices.”

Drug Price Negotiation Working but Could Do More

Looking in a more targeted way at the impact of IRA drug negotiation within the Medicare program, the AARP Public Policy Institute (PPI) released an analysis of the 10 brand-name drugs with the highest Medicare spending that were not already selected for IRA negotiation. Noting that Medicare drug price negotiation is “already creating billions of dollars in savings” and strongly supported by a broad range of Americans, there is significantly more savings that can be achieved in this space. The paper finds that using Most Favored Nations pricing, the lowest drug price available in a set of comparable countries, would reduce Medicare spending by nearly $200 billion between 2029 and 2033. Medicare-negotiated pricing on these 10 drugs would reduce spending by over $100 billion over the same time period.

There is significantly more savings that can be achieved in this space.

Critically, AARP PPI notes that even though each of the examined medications was responsible for more than $2 billion in Medicare spending in 2025, only one will be eligible for selection in Medicare drug price negotiations in 2027 because of “a wide range of exemptions in the [original] law…as well as a provision in a 2025 law that expanded [exemptions].”

Under the IRA, high-cost drugs are generally eligible for Medicare price negotiation if they have been on the market for a while without competition. Some drugs were carved out, including certain “orphan drugs” that treat rare diseases. The 2025 reconciliation bill (HR 1) expanded upon this, allowing more orphan drugs to delay negotiation or skirt the program entirely. 

These additional exemptions are expected to raise costs for Medicare and beneficiaries.

These additional exemptions are expected to raise costs for Medicare—by nearly $4 billion—and beneficiaries, who will save less than anticipated in premiums and out-of-pocket costs. Enrollees who rely on the newly excepted drugs will be hit especially hard, spending roughly $3,000 more per year due to HR 1.

Additional Affordability Reforms Are Needed

People with Medicare are uniquely impacted by high drug prices, partly due to utilization and health status. Over two-thirds of Medicare beneficiaries have multiple chronic conditions, and Part D enrollees take four to five prescriptions per month, on average.

The IRA has helped Medicare Part D enrollees gain access to important medications through a redesign of the Part D benefit—including an out-of-pocket cap—and other features like drug price negotiation and better access to insulin and vaccines. But more must be done to bring down drug prices to ensure older adults and people with disabilities can get the treatments they need while protecting their pocketbooks.

More must be done to bring down drug prices to ensure older adults and people with disabilities can get the treatments they need.

Medicare Rights supports expanding and deepening drug price negotiations and fixing broken incentives that drive high drug costs.

We are also deeply concerned about the impact of HR 1’s drug pricing changes on Medicare’s financing and prescription drug affordability. Limiting negotiation will result in uncaptured costs that will grow and compound every year, as well as higher drug prices, jeopardizing beneficiary health and economic security. We urge policymakers to reverse this provision without delay, and to otherwise strengthen meaningful access to affordable, high-quality health care and prescription drugs.