Medicare Price Negotiations Under the Inflation Reduction Act Could Spell Trouble for Pharmacies

Recently, the Centers for Medicare and Medicaid Services (CMS) announced the list of the first ten drugs that will be subject to Medicare price negotiations under the Inflation Reduction Act (IRA), signed into law by President Biden in 2022. Under the Act, Medicare can directly negotiate the prices of certain high expenditure, single source drugs without generic or biosimilar competition. The effect will be to purportedly expand benefits, lower costs, and improve the sustainability of the Medicare program for generations to come. On its face this seems like a noble cause, right? Not so fast.

While there is much debate about whether the pharmaceutical companies will continue to invest in research and development, whether seniors are likely to see any meaningful drop in costs as a result, and whether this provision is going to be the game changer lawmakers hope it will be, there is an impact to pharmacies that should be anticipated. While Medicare can negotiate prices all they want with manufacturers, Medicare doesn’t purchase drugs at wholesale. Medicare purchases drugs at retail through pharmacies, via their Pharmacy Benefit Management (PBM) contracts. Medicare may negotiate a maximum cost for themselves and its beneficiary in the form of a co-payment, but unless Medicare somehow polices what the pharmacy is reimbursed and what the pharmacy pays for the drug, the pharmacy provider is left holding the bag. Even if Medicare does demand safeguards to prevent losses on these 10 drugs, it is likely the PBMs will reduce margin somewhere else on the backs of pharmacies.

The IRA didn’t anticipate the profound unintended consequence of “squeezing the balloon” on one end only to shift the financial burden to pharmacy providers. Pharmacies will be required to negotiate increased discounts with wholesalers who will tell them there is no margin on these branded drugs to offer any discount. Pharmacies will likely to be forced, once again, to live with reimbursement that will be less than the acquisition cost of the selected drugs. Additional operational concerns for pharmacies involve managing inventory and adjudication of claims for drugs intended for commercial patients versus drugs intended for Medicare beneficiaries. Will there be drugs labeled for “Medicare Patients” only like mail order test strips? Who will pay for the administrative burden? How will you respond to audits?

Last, it is foreseeable that manufacturers could choose to limit their distribution of selected drugs to a limited distribution network of pharmacies, which decreases access for patients in a time when the industry is seeing more vertical integration with health plans and PBMs.

You may not know it, but Boesen & Snow has full time staff on the ground in DC working daily on the Hill and at the White House. We can leverage our DC staff for your pharmacy now to prevent what is a predictable disaster coming to your pharmacy soon.