What IRA drug prices will mean for PBMs, health plans and patients

As the first wave of negotiated Medicare Part D drug prices takes effect in January 2026, drug pricing experts say complicated subplots are brewing beneath the surface of the overall story of lower drug prices. Although the program is designed to reduce drug costs for the Medicare program, the reality is proving to be less straightforward, and there may be a spillover impact into the commercial market. Experts warn that the savings from Medicare price negotiation may not materialize as hoped, and that payers are expected to respond by applying increased utilization management for the negotiated drugs as a way to manage the costs of implementing this much-anticipated provision of the Inflation Reduction Act (IRA).

When they were announced in August 2024, the negotiated discounts for the first 10 drugs ranged from 38% to 79% off list prices, according to CMS. Government officials estimated that if the negotiated prices had been in effect, they would have saved an estimated $6 billion in net covered prescription drug costs, or approximately 22%, across the 10 selected drugs.

Michael Kolodij, Pharm.D., a pharmacist and vice president of health plan consulting at Pharmaceutical Strategies Group (PSG), describes the effect of the initial negotiated prices as lukewarm at best. According to his analysis, the price discounts negotiated by CMS are roughly equal to — or slightly worse than — what private pharmacy benefit managers (PBMs) had previously negotiated.

The discounts negotiated by CMS are based on wholesale acquisition cost (WAC) prices — effectively the list prices — and not the net prices after rebates from the drug manufacturer and other discounts are factored in. The WAC prices were used as a baseline for CMS negotiation because they represent the price set by the manufacturer, and they are the starting point for prices and reimbursement as drugs make their way through the byzantine drug supply chain.

As Michael Ciarametaro, managing director at Avalere Health, who oversees the firm’s IRA initiative, explains, some of the maximum fair prices from the first round of negotiations exceeded the net prices plans were paying before negotiation; therefore, costs increased at the plan level. Plans passed on these increased costs through higher premiums.

For health plans, the impact so far has been measurable but modest. Avalere estimates suggest the first year of drug negotiations raised plan bids by approximately 1.5% to 3%.

Rebates and utilization management

The current system for buying and covering drugs is predicated on artificially high list prices from which PBMs and a variety of payers reap rebates, thereby lowering the true price paid. By effectively lowering list prices, the CMS prices — which have been dubbed "maximum fair prices" — leave a smaller margin for drugmakers to pay rebates.

Ciarametaro says rebating will continue, but that rebates from manufacturers have been reduced for the negotiated drugs. “The ability of companies to discount is very limited,” he says. “In some instances, we’ve seen some increased utilization management of those therapies that aren’t negotiated.”

Surveys of payers conducted by Magnolia Market Access found that net price will still be key for many. Payers had planned to seek rebates for these first 10 drugs, regardless of the prices that CMS was able to negotiate, according to surveys done both last year and this year. Payers also told the pharmaceutical market research consultant that they would consider using the maximum fair price to drive negotiations for their commercial plans and for competitor products in a class. Additionally, payers aimed to increase the use of generics and biosimilars, while limiting other options in negotiated classes, as a way to lower net costs.

The IRA requires health plans serving the Part D market to cover all negotiated drugs, and it has been predicted that CMS will use the annual formulary review process to ensure that plans cover all dosages and forms of selected drugs.

But the legislation does not say that the negotiated products need to be preferred on formularies. The Magnolia Market Access surveys showed that some payers plan to increase utilization management efforts for these products as well as across the formulary, including delaying prior authorizations, excluding or limiting the number of nonnegotiated options or requiring step edits. Most plans surveyed said they will add utilization management and step therapy requirements to negotiated products and prefer products with rebates over negotiated drugs, and others said they would add step therapy or prior authorization beyond the clinical limits on the drug label.

How members are affected

Almost 69 million people in the U.S. are covered by Medicare, including 23 million whose prescription drugs are covered through the stand-alone Medicare Part D plans. In the first set of products that were negotiated, the drug with the highest spending in Part D is the anticoagulant Eliquis (apixaban). Medicare spent $16.48 billion for the 3.7 million people who take Eliquis, CMS said when it announced the new prices in August 2024.

But not every Medicare beneficiary who is prescribed one of these drugs will see a savings, both Ciarametaro and Kolodij point out. Beneficiaries who previously had high out-of-pocket drug costs have already experienced some benefit from separate changes to Part D benefits. A $2,000 cap on out-of-pocket went into effect at the beginning of 2025. For people with high drug costs, that cap has more of an effect on how much they pay for drugs than lower co-payments stemming from the new CMS maximum fair price list prices going into effect in 2026. Another change to Part D plan coverage that took effect this year has allowed people with Part D plan coverage to spread their out-of-pocket costs evenly throughout the year.

“In a lot of instances, it’s a wash for beneficiaries in terms of how it impacts them financially,” Ciarametaro says of the CMS-negotiated drug prices. Moreover, low-income subsidy beneficiaries, who already enjoyed minimal cost-sharing, have seen virtually no change in their out-of-pocket expenses.

The IRA’s $2,000, however, may have had an unintended consequence on beneficiaries who did not have high drug costs previously. These enrollees may have experienced increased deductibles and coinsurance as insurers spread the cost of implementing the IRA across a broader patient pool, according to an analysis by Brigham and Women’s Hospital and Harvard Medical School published in JAMA Internal Medicine in August 2025.

Looking ahead

Ciarametaro says there are some key differences with the second set of drugs that were negotiated, with more protective classes in the mix of drugs chosen. CMS released the prices in November 2025 for the 15 drugs whose new prices will go into effect in January 2027. Several of the 15 drugs in this second cycle are used to treat cancer and diabetes, which are protected classes.

“Oncology typically doesn’t have a lot of rebates to insurance companies,” Ciarametaro says. “Payers are learning what they can and can’t do in terms of formulary management because it was somewhat of a gray area in terms of what the guidance said. They’re obviously going to take those lessons and apply them going forward.”

He predicts that plans may have more flexibility in plan design in 2027, when the new prices for the second set of drugs chosen take effect. Several are from classes with substitutable alternatives, such as asthma and psoriasis.

“Plans have more flexibility for year 2 in terms of what they can do with formulary coverage than they really had in year one,” he said. “And payers will be in a position to be more aggressive in terms of how to have negotiated drugs compete with the non-negotiated therapeutic alternatives.”

Healthcare leaders said it is likely that the third round of negotiations will have a much larger impact when Part B drugs are included. CMS plans to release the list of those drugs by Feb. 1, 2026, with new prices taking effect in 2028.

But also going into effect in 2028 is a provision tucked into President Donald Trump’s One Big Beautiful Bill Act. This provision will shield orphan drugs from Medicare price negotiations, but it’s still unclear what the full impact of this will be. Two separate analyses published in August 2025 in Health Affairs have found that some of the products that will be exempt from or have had their price negotiations delayed are blockbuster drugs with billions of dollars in annual sales. Under this law, which was signed in July 2025, drugs treating only orphan conditions are completely exempt from price negotiations. For drugs with both orphan and common indications, the clock for negotiation starts only when they receive approval for treating common conditions.

Two of these blockbusters are Keytruda (pembrolizumab) and Opdivo (nivolumab), which are expected to be delayed for negotiation by up to 10 years, according to an analysis from West Health and Verdant Research. Keytruda, which received its first approval in 2014 for patients with advanced melanoma who have a BRAF mutation, is now approved for 41 indications. Several of those are for rare cancers, such as biliary tract cancer, Merkel cell carcinoma and a rare subtype of non-Hodgkin lymphoma. Keytruda is Merck’s best-selling product, with 2024 sales of $29.5 billion.

Opdivo was also first approved in 2014 to treat patients with advanced melanoma who have a BRAF mutation. It has more than 30 approvals alone or in combination, including rare cancers such as malignant pleural mesothelioma, a rare subtype of small cell lung cancer, and a subtype of colorectal cancer. Opdivo is the top-selling drug for Bristol Myers Squibb, with 2024 sales of $9.3 billion.

First 10 drugs that CMS negotiated prices for

Prices go into effect in 2026

Source: CMS

Second set of drugs selected by CMS for price negotiation

Prices go into effect in 2027

Source: CMS