Medicare spending could reduce by $4 billion with drug pricing reforms

Jan. 30, 2023

In early January, many drug manufacturers raise drug prices—but a new provision regarding drug pricing may give some companies reason to pause. Drug pricing reforms in the Inflation Reduction Act of 2022 will require drug manufacturers to pay back Medicare if they raise drug prices faster than inflation.

In a new analysis, investigators from Brigham and Women’s Hospital used data from 2018 to 2020 to simulate the impact that this policy may have on Medicare Part B, which covers clinician-administered drugs like injections and infusions. The team estimated that over the first three years of its implementation, the policy could reduce Medicare Part B drug spending by three percent—the equivalent of $4 billion. 

“The effects of the provisions of the Inflation Reduction Act have the potential to ripple throughout the entire prescription-drug market,” said Benjamin Rome, MD, MPH, Program On Regulation, Therapeutics, And Law (PORTAL), Division of Pharmacoepidemiology and Pharmacoeconomics, Department of Medicine, Brigham and Women's Hospital. “Our analysis suggests that this law will prevent substantial spending that results from annual price hikes on existing drugs, which will translate into savings for both the federal government and for patients.” 

Brigham and Women’s Hospital release