Does Medicare Negotiate Drug Prices?

Medicare is not yet permitted to negotiate prescription drug prices; however, it will begin negotiating reduced prescription drug prices in 2026.

Prescription medications are covered under Medicare Part D. Part D plans, which are sold by private companies, are governed by Medicare guidelines. However, under current federal law, Medicare cannot negotiate lower prescription drug pricing.

A new law that goes into effect in August 2022 will allow Medicare to begin negotiating prescription drug prices, but not right now.

Here's what you need to know about how Medicare prescription drug pricing discussions currently work and what will change in the coming years.

Why can’t Medicare negotiate drug prices?

The legislation that established Medicare Part D also banned Medicare from bargaining for lower prescription medication pricing.

Medicare Part D plans became available in 2006, a few years after the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, established the program.

The MMA contains a "noninterference" provision that specifies that Medicare cannot do the following:

  • Interfere in prescription drug price discussions between Medicare prescription drug insurance companies, drug makers, and pharmacies.
  • Require Part D plans to cover a single formulary or list of covered medications.
  • Set prices for covered Medicare Part D drugs.

Bills to provide Medicare the authority to negotiate Part D prescription medication costs have been proposed in every session of Congress since Medicare Part D's inception, but none have been passed until 2022.

When will Medicare start negotiating drug prices?

In August 2022, President Joe Biden signed the Inflation Reduction Act into law. For the first time, this measure gives Medicare the authority to negotiate certain prescription drug pricing.

Beginning in 2026, Medicare will negotiate rates for a limited number of pharmaceuticals each year: 10 drugs in 2026, 15 total in 2027, 15 overall in 2028, and 20 total each year from 2029 on.

Which Medicare Part D drugs will have negotiated prices?

Medicare will bargain for the most expensive brand-name prescription pharmaceuticals on which it has spent the most money. According to data from the Centers for Medicare & Medicaid Services for 2020, the most expensive medications include those used to treat the following conditions:

  • Blood clots.
  • Cancer.
  • Diabetes.
  • Arthritis.
  • Asthma.
  • HIV.
  • Incontinence.

What other changes are coming for Medicare Part D?

Other Medicare Part D amendments slated for implementation in the Inflation Reduction Act include the following:

  • Caps on out-of-pocket costs like copays, coinsurance and deductibles.
  • Limits on increases in Medicare Part D premiums and drug prices.
  • Eliminating the Medicare Part D donut hole, or coverage gap.
  • Expanding eligibility for the Part D low-income subsidy, also known as Medicare Extra Help.