Every person deserves access to the medications they need at a price they can afford. In August, Congress passed the Inflation Reduction Act, landmark legislation that starts to fix the broken market for prescription drugs. This desperately needed reform begins to rein in runaway drug prices that harm patients and drive up the cost of health coverage for everyone.
Out-of-control drug costs are a large contributor to the lack of affordable healthcare. Take just one example: AbbVie’s Humira, which treats a range of chronic diseases, including arthritis, Crohn’s disease, ulcerative colitis, and plaque psoriasis. Humira has been one of the world’s top-selling drugs for a decade – a status achieved largely due to its repeated price increases. AbbVie continues to raise the price of its blockbuster drug by over 470% since it launched in 2002, despite a lack of new clinical evidence to justify its price hikes. The Institute for Clinical and Economic Review (ICER) found that from 2019 to 2020, AbbVie raised the net price of Humira by 9.6%, costing the US an additional $1.4 billion in spending. That same year, while Americans were struggling to afford their medications, AbbVie profited $16.1 billion from sales of Humira in the US alone.
When it comes to exorbitant pricing, Humira is hardly alone. The routine price increases attached to many high-cost drugs rarely have anything to do with delivering more value. Instead, they maximize revenue for giant drug companies at the expense of patient access and affordability. So, it’s not surprising that profit margins for pharmaceutical companies are far higher than any other part of the health care system. AbbVie had a net profit margin of 22% in 2022. By comparison, Blue Shield of California caps its profits at just 2% and returns any amounts over that limit to the community or its customers.
Federal law limits what states and other payers in the healthcare market can do collectively to push back on out-of-control drug costs. Only Congress can enact the sweeping reforms that are required. The drug cost reforms in the Inflation Reduction Act represent a historic step forward by Congress that could reduce the federal deficit by $288 billion and help over 1.3 million Americans better afford their prescription medications. Key drug cost provisions in the Inflation Reduction Act include:
- Frees the federal government to negotiate directly with drug makers over what Medicare pays for some of the most expensive drugs, directly addressing drug companies’ anti-competitive gamesmanship that limits affordable choices for consumers.
- Caps drug price increases to the rate of inflation, targeting the pharmaceutical industry’s egregious pricing behaviors like in the example of Humira’s repeated price hikes described above.
- Limits out-of-pocket spending for Medicare beneficiaries to $2,000 a year, lowering drug spending for over 1.3 million Americans.
- Caps insulin costs for Medicare enrollees at $35 per month, helping improve access to this life-saving drug for the 3.3 million Medicare Part D enrollees who use insulin to manage their diabetes.
The reforms in the Inflation Reduction Act represent a major accomplishment by Congress to address out-of-control drug costs. It begins to put the system right and demonstrates that innovation and affordability are not mutually exclusive values. While we still have a long road ahead to rein in drug pricing, millions of Americans will now be better able to afford the medications they depend on to live.