IPAY 2027 Inflation Reduction Act’s Max Fair Prices Released
TL/DR –
The Trump Administration has released the maximum fair prices for 15 drugs under the Medicare Drug Negotiation Program for 2027. The administration expects to save $12 billion from this program, a 44% reduction in spending if the prices were in place for 2024. However, there are concerns about inefficiencies, exaggerated benefits, and lack of evidence that savings will materialize.
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Trump Administration Announces Maximum Fair Prices for Medicare Drug Negotiation Program
The Trump Administration has made public the maximum fair prices for covered drugs that will be applicable in the initial price applicability year (IPAY) 2027 under the Medicare Drug Negotiation Program. The 15 selected Part D drugs have been chosen due to their high program spending or high utilization by beneficiaries. The administration has projected a saving of approximately $12 billion for 2027, nearly double the savings of the initial year under the program.
Medicare Drug Negotiation Program’s Second Wave
The Medicare Drug Negotiation Program, established under the Inflation Reduction Act (IRA), has seen its second wave of negotiations resulting in the finalization of “maximum fair prices” (MFPs) for 15 high-spend or high-utilization Part D drugs, slated to take effect from January 1, 2027. These drugs, which in 2024 alone were responsible for around $42.5 billion in gross Part D spending, are used by approximately 5.3 million beneficiaries. However, some analysts warn that the claimed savings are based on retrospective data that tells only part of the story.
Negotiation Results for IPAY 2027
The Centers for Medicare and Medicaid Services (CMS) have been directly negotiating prices for high-expenditure, single-source Part D drugs with manufacturers under the Medicare Drug Price Negotiation Program. The 15 selected Part D drugs for IPAY 2027 have been finalized after a year-long negotiation process. The administration expects that Medicare prescription drug coverage enrollees will save $685 million in out-of-pocket costs in 2027 as a result of these MFPs.
Comparison to Previous Year’s Savings and Future Projections
For IPAY 2027, CMS has projected larger aggregate savings in both absolute and percentage terms, amounting to $12 billion in net savings, excluding the coverage gap discount program (CGDP), and about $8.5 billion when CGDP is incorporated. Beneficiaries are expected to save an estimated $685 million in out-of-pocket costs in 2027 from these MFPs alone.
These savings can be contrasted with those from the first negotiation cycle in IPAY 2026, which involved 10 Part D drugs used for conditions such as diabetes, heart failure, autoimmune disease, and blood cancers. According to earlier estimates, if the 2026 MFPs had applied in 2023, Medicare would have saved about $6 billion in net spending, while beneficiaries were projected to save about $1.5 billion in out-of-pocket costs in 2026.
Implications for Medicare Beneficiaries
For individual Part D enrollees, the impact of the new MFPs will depend on various factors such as benefit design, utilization, and the interplay with other changes under the IRA. Some of the factors include interaction with the Part D out-of-pocket cap, coinsurance versus copay designs, formulary coverage and access, and distribution of gains. Since the IPAY 2027 list includes several specialty and high-cost products, savings will be concentrated among beneficiaries who use these specific drugs rather than spread evenly across all Part D enrollees.
Existing Points of Contention
Some critics have pointed out that the Trump Administration’s strategy for drug pricing has been aggressive, with tactics of leverage rather than traditional negotiations over value. Chris Klomp, the Director of Medicare, stated, “A true negotiation implies that you might not reach a negotiated outcome.” As such, the IRA’s negotiation tactics have been likened to a leverage campaign.
Further, critics note that any “value” created is narrow and that the downstream effects of manufacturers’ responses to statutory caps on their Medicare revenue are not accounted for in the headline savings figure. The IRA’s aggressive tactics, critics argue, do not constitute a principled, predictable pricing framework but rather a threat of punishment to bring down prices in discrete instances.
Looking Ahead
While CMS touts the successful conclusion of the negotiation process and the potentially significant savings, critics maintain that the projected savings are theoretical and unsubstantiated till the MFPs are actually implemented in Part D.
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