Three years after Congress passed the Inflation Reduction Act in 2022, a significant change from that law will go into effect next month.
The law gives the federal Centers for Medicare and Medicaid Services (CMS) the right to negotiate the prices of high-cost prescription drugs and forces drug companies to give back money when they raise prices faster than inflation, as The Commonwealth Fund explained. The medications subject to negotiations are single-source drugs without generic or biosimilar competition, CMS said.
Previously, CMS could not negotiate prices with drug companies under the Medicare Prescription Drug Improvement and Modernization Act of 2003.
A law that lowers drug prices
Since the Act allowed those negotiations, CMS has announced the results of the first round of drug-price concessions, as we reported here and here. The lower prices for the 10 drugs in the first-round of negotiations will go into effect on Jan. 1. When that happens, the 53.8 million Medicare members with Part D prescription drug plans will save $1.5 billion in out-of-pocket costs by year end, according to the Peterson KFF Health System Tracker.
Those out-of-pocket costs will be lower because the new prices are at least 38% lower than 2023 list prices, the consumer nonprofit Medicare Rights Center reported. Taxpayers and the Medicare program itself will save $6 billion annually, the center added.
Another provision of the Inflation Reduction Act caps what Medicare members pay out-of-pocket for prescription drugs, and it’s indexed to inflation, meaning it rose to $2,100 in 2026 from $2,000 now (2025) for everyone with Medicare drug coverage, even those who do not have a Medicare Prescription Payment Plan.
The act’s provisions are likely to have a significant effect on drug prices, but other efforts are underway as well, such as TrumpRx, which we covered last month, and other strategies such as most-favored nation (MFN) and external reference pricing.
Questions for journalists
Journalists will have multiple questions to ask drug makers and health economists about TrumpRx and other similar efforts. Here are five of them:
- How much will these endeavors affect consumer spending on prescription drugs, which are typically among the fastest rising health care costs?
- Will the negotiated prices for Medicare mean consumers who do not have Medicare get lower prices too, or will those prices be unaffected?
- Will paying for consumers to get GLP-1 drugs result in lower costs over time in reduced complications from diabetes and heart disease? Currently, Medicare does not cover drugs for weight loss only. Those medications must be prescribed for diabetes or other health conditions.
- If the drug makers’ deals with TrumpRx are confidential and voluntary, will costs rise over time?
- If costs rise, can researchers and journalists track those costs?
While the lower prices will affect Part D members only, other strategies may help consumers save money on high-cost drugs. How much those efforts will help is difficult to predict, according to three experts who discussed drug prices during a KFF Health Wonk Shop webinar last month: Developments in Prescription Drug Pricing under the Second Trump Administration.
Drug price experts weigh in
One of the experts, Juliette Cubanski, deputy director of KFF’s Program on Medicare Policy, said President Trump issued an executive order in May directing federal officials to take steps to bring American drug prices down to match those that consumers in large developed nations pay, called MFN pricing.
This fall, Trump struck deals with drug companies that agreed to make MFN pricing available to state Medicaid programs, to introduce new drugs at MFN prices and to discount U.S. prices for certain medications, she noted. Also, Trump made deals with: AstraZeneca, Eli Lilly, Novo Nordisk and Pfizer and with EMD Serono, which makes in vitro fertilization therapies, Cubanski said. Those deals are confidential and voluntary, the drug makers said. We covered those developments last month.
Another webinar participant, Stacie B. Dusetzina, Ph.D., explained that when Pfizer announced its deal, company executives mentioned MFN pricing for Medicaid. The problem with setting prices based on what Medicaid pays is that drug makers that have brand-name drugs on the U.S. market often raise those prices over time, she said. “So their net price in Medicaid today might actually be lower than international prices,” she explained. Dusetzina is a professor of health policy and the Ingram Professor of Cancer Research at the Vanderbilt University Medical Center.
Also significant, Cubanski added, are the deals Novo Nordisk and Eli Lilly announced with Trump. Those companies are the leading makers of GLP-1 drugs which physicians prescribe for patients who are obese, overweight, have diabetes or other medical conditions. Those agreements call for discounted prices for GLP-1 drugs for Medicare and Medicaid, she added. “And the administration also announced plans to cover obesity drugs under Medicare, which is currently prohibited by law,” she noted.
On this issue, webinar participant Darius N. Lakdawalla, Ph.D., explained why. “Under the language of the original Medicare statute, anti-obesity medications that do not treat diabetes or heart disease are viewed as cosmetic treatments and therefore not eligible for coverage,” he said. “That’s a rather archaic prohibition, and attempts to fix that legislatively have not been successful.” Lakdawalla is a professor of pharmaceutical economics and public policy and the Quintiles chair in pharmaceutical and regulatory innovation, in the Department of Pharmaceutical and Health Economics at the USC Mann School.
Paying cash versus using insurance
Under Trump Rx, which is due to open next year, not all patients would benefit, Dusetzina added. A consumer with health insurance could do better if the insurer declined to cover an expensive drug and no other medication would work, she said. That person could buy that drug with cash or a charge card at a site such as TrumpRx, or the Mark Cuban Cost Plus Drug Company, she noted.
But Americans with health insurance need to understand that paying cash may not be better than using their drug plan, she explained. “So again, a pretty small group of people who will really benefit from those cash-pay prices,” she said.
Even patients who might get a large discount on a brand-name price often pay high prices that are unaffordable for average consumers, Dusetzina noted. “For example, GLP-1 prices have recently gone from about $500 in the cash-pay market toward $350 a month,” she said, adding, that’s a great deal for someone paying $500 or $1,000 a month. “But for the average person, $350 a month is still pretty unaffordable,” she commented. “And we know from research that once a price goes above $100 a month a lot of people stop filling their drugs at that price point.”
Dusetzina worries that consumers who have health insurance would use a cash-pay site without knowing they would do better using their insurance, she said. Cash-paying consumers cannot count such spending toward the annual out-of-pocket maximum or deductible, she said.
Getting a return on investment
Given the webinar is called the Health Wonk Shop, the discussion turned wonky on what drugs cost versus their value over time. The most savings from GLP-1s may result from the prevention of complications such as being obese, overweight, having diabetes or heart disease, Lakdawalla explained. “It’s actually much more valuable to treat people who are not as sick because those people have not yet experienced irreversible complications,” he said. “Treating people earlier in the progression of overweight and obesity prevents the arrival of diabetes [and] complicated heart disease. That saves money, but the lion’s share of the gain is the extension in life expectancy and quality of life for the patients treated.”
Health economists who estimated such savings over years calculated that such spending could produce a return on investment of 13%, which is more than the 10% average return that consumers get from investing in stocks on the S&P 500, he said.
“Using conventional approaches to measuring gains in quality and quantity of life and health care cost savings and then netting out the cost even at $400 or $500 [a month] … still gives you a healthy rate of return,” he concluded.
Resources
- Fact Sheet: President Donald J. Trump Announces Major Developments in Bringing Most-Favored-Nation Pricing to American Patients, The White House, Nov. 6, 2025
- TrumpRx and a most favored nation policy won’t lower prices for patients, Stat First Opinion, Oct.. 24, 2025.
- Listen: Why ‘TrumpRx’ Might Not Save You Money, Julie Rovner, KFF Health New, Oct. 9, 2025.
- Negotiated Prices Take Effect for Ten Drugs in 2026, Medicare Rights Center, Oct. 9, 2025.
- Medicare Drug Price Negotiations: All You Need to Know, Commonwealth Fund, May 15, 2025.
- External Reference Pricing: The Drug-Pricing Reform America Needs?, The Commonwealth Fund, May 27, 2021.
