Jackie Trapp has incurable blood cancer and takes a chemotherapy drug that cost more than $240,000 last year.
Even with a Medicare drug plan, the Muskego, Wisconsin, woman said she was charged $21,740 in out-of-pocket costs last year for Revlimid. The nest egg she and her husband built has dwindled and now the couple “lives on the edge.”
“We used to donate a healthy amount to charities,” Trapp said. “Now, I’m receiving charity.”
Trapp is among 1.3 million Americans whose drug spending exceeds Medicare’s “catastrophic” coverage threshold. The sweeping climate and health bill passed by Congress last month will cap out-of-pocket spending for Medicare recipients at $2,000 beginning in 2025.
The law, called the Inflation Reduction Act, also grants the federal government authority to negotiate prices for some of Medicare’s costliest drugs. When legislation expanded Medicare prescription drug coverage in 2003, the federal government was forbidden from negotiating drug prices with pharmaceutical companies or insurance plans.
Now, the federal government will have the authority to do just that, a cost-setting power for some top-selling drugs that not even President Barack Obama’s signature 2010 health law, the Affordable Care Act, allowed.
“It is a huge precedent being established to have the government now directly involved in setting prices,” said Ryan Urgo, managing director of health policy at Avalere, a health care consulting company.
When will consumers see savings?
While big savings from negotiated prices and the $2,000 prescription drug cap are a few years away, Medicare enrollees will notice more immediate savings.
Drugmakers will no longer be able to impose price hikes on Medicare recipients without constraints. Beginning next year, pharma companies that increase prices above inflation levels must pay federal rebates. That is projected to yield significant savings for Medicare; half of all drugs covered by the federal health program for older adults and disabled residents had price increases above the rate of inflation in 2020, according to Kaiser Family Foundation.
Also beginning next year, Medicare recipients will see insulin prices capped at $35 a dose. That cap will not extend to Americans covered by private insurance plans but it could still benefit millions of consumers.
The law also extends free vaccines to seniors. In 2020, 3.6 million Medicare recipients received the shingles vaccine.
More lucrative savings come in 2024, when Medicare modifies catastrophic coverage. Under existing law, consumers must pay 5% of drug costs when out-of-pocket spending reaches the catastrophic threshold, estimated to be $3,000 in 2022.
For people who take a specialty drug for cancer or multiple sclerosis, out-of-pocket costs can swell to several thousand dollars. But the law eliminates the 5% charge beginning in 2024. And bigger savings will come in 2025 when Medicare caps out-of-pocket spending at $2,000.
Jack Hoadley is a Georgetown University McCourt School of Public Policy research professor emeritus who volunteers to counsel Medicare enrollees struggling with the high cost of prescriptions. He said these people are generally middle-income retirees who do not qualify for assistance programs or subsidies available to lower-income individuals.
He said such older adults who reach Medicare’s catastrophic coverage often must pay drug bills that exceed $10,000 or “quite a bit above that.”
“It is definitely going to be life-changing for some of those folks,” Hoadley said. “It’s going to save some people an enormous amount of money.”
Medicare prepares for drug negotiations
Perhaps the biggest change will be empowering the federal government to negotiate the prices of top-selling drugs.
In an essay last week in the Journal of the American Medical Association, Kaiser Family Foundation Executive Vice President for Health Policy Larry Levitt described the law as “a foot in the door for health care cost containment that has seemed politically unattainable up until now.”
From 2026 through 2029, Medicare will negotiate prices for 60 top-selling drugs on the market for years without competition from cheaper generics. The Congressional Budget Office estimates the law will save the federal government $288 billion over the next decade.
The law does not give Medicare unlimited authority to select which drugs to negotiate. Retail drugs are eligible only after they have been on the market for nine years without a competing generic version. Physician-administered drugs will have 13 years before being subject to negotiation.
The Department of Health and Human Services has not publicly identified the drugs that will be negotiated. Drugs that might be targeted include blood thinners Eliquis and Xarelto, the cancer drug Keytruda and the eye disease medication Eylea, according to a paper this week in JAMA.
Centers for Medicare and Medicaid Services Administrator Chiquita Brooks-LaSure said her staff can handle the “early deliverables” for Inflation Reduction Act programs that will soon be rolled out. However, she acknowledged drug price negotiations represent new ground for the agency. The centers will look to hire staff to handle the new duties.
“We will be in the coming months continuing to build up our staff,” Brooks-LaSure said. “Part of that will be talking to and looking to our sister agencies that negotiate with drug companies. We will hire additional expertise.”
Pharmaceutical companies often seek to extend the period where they have exclusive rights to sell a drug under patent without competition from a generic. Because the new Medicare rules will eventually target some of these drugs for negotiation, it’s a “great unknown” how drug companies will react to the new rules, said Milena Sullivan, managing director at Avalere.
Sullivan said the new rules might discourage drug companies from “patent gaming” to get a longer period without generic competitors. However, some manufacturers might hesitate to launch new generic drugs to compete with brand drugs with an “artificially lower price” due to Medicare negotiations, Sullivan said.
The law calls for establishing a “maximum fair price” about 25% lower than existing prices. Drug negotiations could lower the price even more.
However, the law does not limit how much pharmaceutical companies charge for newly approved drugs.
“Are we going to see products come in at even higher launch prices in order to account for the shorter life cycle in the market?” Sullivan said. “We don’t know that, obviously every manufacturer is going to handle that differently.”
Pharmaceutical industry groups that unsuccessfully fought the law have now shifted tactics.
In a statement, Pharmaceutical Research and Manufacturers of America President and CEO Stephen J. Ubl said the new law is “a partisan set of policies that will lead to fewer new treatments” and does not address drug affordability for consumers.
“We will explore every opportunity to mitigate the harmful impacts from the unprecedented government price setting system being put in place by this law,” Ubl said.
Before Trapp, 57, was diagnosed with the blood cancer multiple myeloma in 2015, she and husband Doug saved for what they thought would be a comfortable retirement. Now, the couple scrutinize household expenses so they can afford her medication.
Filling a single prescription of her chemotherapy drug triggers Medicare’s catastrophic coverage, she said. She also takes the blood thinner Xarelto to prevent blood clots; she pays $90 for a three-month supply.
She spends her free time applying for grants from organizations such as the Leukemia & Lymphoma Society to offset her drug costs. She also shares her story as a volunteer for Patients for Affordable Drugs Now, a nonprofit that advocates for lower drug prices.
Still, her husband sold a classic car, a 1935 Chevy street rod, to replenish their savings. Rather than hiring outside help, he does chores to save money, such as climbing a tall ladder to paint their home’s eaves and gutters.
Trapp said the new law will dramatically change their lives.
“It would be huge in terms of us being able to reinstall that safety net of ours and go back to having a healthy savings account,” she said.
With drug companies routinely charging more than $100,000 per year for new treatments, many cancer patients struggle to afford medications. While the new law caps drug costs for Medicare patients, millions of cancer patients with private insurance or no insurance will continue to grapple with spiraling drug costs, said Stephanie Wheeler, a professor of Health Policy and Management at the University of North Carolina at Chapel Hill.
“There will be gaps. There will be unintended consequences,” Wheeler said. “But for those of us who’ve been working in the cancer cost space, any sort of federal involvement on this is welcome. And I’m sure that is absolutely true for patients as well.”
Ken Alltucker is on Twitter at @kalltucker, or can be emailed at [email protected]