Year: 2025
Type: article
Abstract: The Inflation Reduction Act (IRA) creates a new process to cap Medicare Part D branded drug prices. It prohibits Medicare from paying more than a specified discount from average private market prices and requires that CMS negotiate with manufacturers to agree on a maximum fair price that Medicare will pay that is lower than the specified discount. This article analyzes the cause of high drug prices and how negotiations to set the maximum fair price might unfold. It compares Medicare's new pricing process to the way drug prices are set in Medicaid, the Veterans Administration, U.S. private insurers, and European nations. It analyzes how negotiations to set the maximum fair price might unfold in light of negotiation theory and the practices to negotiate prices employed in Europe. It draws inferences from the initial published data on the first round of negotiated prices.
DOI: 10.1017/jme.2025.59
Author: Marc A. Rodwin
Institution: Suffolk University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,550
Funder: Brandeis University
OpenAlex ID: W4409619620