The Biden administration this week is expected to claim victory on its stated goal of lowering drug prices for seniors. While the administration will aim to show the Inflation Reduction Act (IRA) has resulted in lower prices for seniors, the reality is much different. As the old adage warns: If it sounds too good to be true, it probably is. There are two main issues at play here: 1) What do patients actually pay for their medicines at the pharmacy counter and 2) How are those prices determined – between rebates, PBMs, and insurance design?
List Versus Net Price
First, the administration will claim “billions” in “savings” from “negotiations,” but the numbers will be misleading. They will likely compare the “negotiated price” to the list price of a drug – which is never what Medicare or other insurers pay. This is because of the complex system of drug pricing. Looking at the net price of the drugs offers a better comparison to understand if and how seniors may actually benefit from any kind of savings.
When the administration compares the “negotiated” price to the list price, the math to claim that level of savings is not rooted in reality.
Premium Costs
We also know the IRA has significantly increased Part D beneficiary premiums. Politico explained it clearly:
“One of President Joe Biden’s signature domestic achievements is set to cause a significant spike in Medicare premiums for millions of Americans just ahead of the November election. Now, his administration is preparing to dole out billions of dollars to private insurance companies to blunt the impact of the increase.”
Put another way: The administration has approved a multi-billion-dollar taxpayer bailout of insurance companies to cover up the fact that premiums were set to increase significantly months before the election.
The Big Picture
When you hear the administration and proponents of the IRA claim victory this week, remember these points:
1. Almost never does a patient pay a list price for a medicine, so the proclaimed “savings” are not nearly as robust as the administration claims.
2. Most of the IRA “savings” go to the government – not Medicare beneficiaries – and green-energy priorities from the same legislation. There is no reinvestment to protect seniors or strengthen the Medicare program.
3. The IRA’s redesign of Medicare drug coverage, is driving up Part D premiums for seniors. This is a politically untenable position for the administration, which is now spending billions to conceal the outcomes without Congress weighing in.
4. All of these policies significantly harm the future of innovation in the U.S. by undermining the system that has led to the greatest medical advancements and health care system the world has ever seen.