USA Law and Practice Contributed by: Daniel Kracov, David Marsh and Alice Ho, Arnold & Porter
• The federal government is negotiating pricing for certain drugs chosen for inclusion in the pro- gramme. Such negotiations establish a “maxi- mum fair price” for certain drugs covered under Medicare Part B and Part D with the highest total spending (excluding specific categories of drug). The drugs are chosen from the 50 drugs with the highest total Medicare Part D spending and the 50 drugs with the highest total Medicare Part B spending. A prohibitive excise tax will be levied on drug companies that do not comply with the nego- tiation process. • Drug companies are now required to pay rebates to Medicare if prices rise faster than inflation for drugs used by Medicare beneficiaries. • Out-of-pocket spending is capped for Medicare Part D enrolees and other Part D benefit design changes. • Monthly cost sharing for insulin is now limited to USD35 for people with Medicare. Various aspects of the IRA have been quite contro- versial, including provisions that disadvantage certain orphan drugs (later addressed in the “One Big Beau- tiful Bill Act” (OBBBA), enacted in July 2025, which protects orphan drugs with multiple rare disease indi- cations from Medicare price negotiations, provided they have no non-orphan indications), as well as small molecules relative to biologics (fixes to this “pill penal- ty” remain under consideration). The IRA drug-pricing provisions are currently being challenged in multiple lawsuits under a wide variety of theories. There are also other federal laws that cap pharmaceu- tical prices for certain purchasers or require minimum rebate levels in the following ways. • Subject to ongoing litigation concerning the scope and terms of the programme, manufacturers sell their outpatient drugs to “covered entities” (typi- cally, certain clinics and hospitals believed to serve safety-net functions) at or below a statutorily set ceiling price under the 340B Drug Pricing Pro- gramme. • Manufacturers must sell brand name drugs to four federal agencies (the Department of Veterans’ Affairs, the Department of Defence, the Public Health Service, and the Coast Guard) at or below
a “federal ceiling price” determined by a statutory formula. • Manufacturers must pay a rebate set by a statutory formula on each unit of their outpatient drugs paid for by the Medicaid programme. This is not liter- ally a “price control” programme because it only controls the rebate paid to Medicaid after the drug has been dispensed or administered. As such, the price that Medicaid pays upfront to the dispensing pharmacy or to a physician’s office or clinic that administers a drug is not affected by the Medicaid rebate programme. 8.2 Price Levels of Pharmaceuticals or Medical Devices In the USA, companies typically set their prices based on a wide range of factors, and the price level of a pharmaceutical product or medical device does not depend on the prices for the same product in other countries. However, the Trump Administration has sought, via an Executive Order entitled “Deliver- ing Most-Favored-Nation Prescription Drug Pricing to American Patients”, to impose most-favoured nation (MFN) pricing to attempt to bring American drug prices more in line with those paid by similar nations, including announcing MFN deals with major pharmaceutical manufacturers for various products, a number of which are being offered to patients via a new “TrumpRx” website. The Administration has also announced an agreement with the United Kingdom that will increase the net price of new prescription drugs by 25% in the UK in return for a three-year, 0% tariff rate on pharmaceuticals exported to the USA. 8.3 Reimbursement From Public Funds The largest healthcare programme in the USA today is the Medicare programme, which provides healthcare coverage for people who are 65 and older, are disa- bled (for two years or more), or have end-stage renal disease. Medicare accounts for roughly 21% of US health spending. Most pharmaceutical products are eligible for some form of Medicare coverage, either through: • Part B (Medicare’s traditional outpatient benefit, which covers a small but important set of drugs, including physician-administered drugs);
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