This week, the nonpartisan Congressional Budget Office (CBO) said a provision in the reconciliation bill that widens exemptions from Medicare’s drug negotiation program will cost significantly more than previously thought. The price tag is now $8.8 billion, an 80% increase over CBO’s original $4.9 billion estimate. The upward revision was made to more accurately reflect the scope of the policy change.
“Orphan Drug” Price Tags Previously Overlooked in HR 1 Evaluation
Under the Inflation Reduction Act (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 reconciliation bill (HR 1) expanded upon this, allowing more orphan drugs to delay negotiation or skirt the program entirely. Originally, CBO did not fully capture the extent to which the enhanced exclusions would raise Medicare costs, leaving key impacted drugs—namely Keytruda, Darzalex, and Opdivo—out of its analysis.
In 2023, Medicare spent $17.5 billion on drugs that are likely to be delayed or blocked from negotiation due to HR 1.
To fill this information gap, other independent experts stepped in, producing reports that examine the HR 1 policy change more comprehensively. For example, a recent KFF report factors in the drugs CBO initially missed. The authors explain that in 2023, Medicare spent $17.5 billion on drugs that are likely to be delayed or blocked from negotiation due to HR 1. Keytruda alone accounted for 32% of that amount ($5.6 billion); Darzalex was the second most expensive ($2.4 billion), followed by Opdivo ($2 billion).
The updated CBO analysis accounts for these effects.
All Beneficiaries to Experience Higher Costs
Importantly, in addition to raising Medicare spending by nearly $4 billion and eroding the IRA’s projected 10-year $98.5 billion savings to Medicare, HR 1’s additional exemptions will mean higher costs for beneficiaries, who will save less than anticipated from the drug negotiation program in premiums and out-of-pocket costs. Those who rely on the newly excepted drugs will be hit especially hard. KFF estimates beneficiaries who take Keytruda and Opdivo will spend roughly $3,500 and $3,000 more per year, respectively.
Medicare Rights Urges Affordability Reforms
Medicare Rights is 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.
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