Inflation Reduction Act (IRA)
A 2022 federal law that, for the first time, allows Medicare to negotiate prices directly with drug manufacturers for select high-cost medications.
How It Works
The Inflation Reduction Act of 2022 is the most significant drug pricing reform in decades. Key provisions include: (1) Medicare can negotiate prices for a growing number of drugs — starting with 10 drugs in 2026 and expanding to 20 per year by 2029; (2) manufacturers that raise prices faster than inflation must pay rebates back to Medicare; (3) Part D out-of-pocket costs are capped at $2,000 per year starting in 2025; and (4) insulin copays are capped at $35 per month for Medicare beneficiaries. The first 10 drugs selected for negotiation include Eliquis, Jardiance, Xarelto, and Januvia — representing billions in annual Medicare spending.
Related Terms
- Medicare Part D — The prescription drug benefit within Medicare, covering outpatient medications for 50+ million Americans aged 65+ and those with disabilities.
- Drug Price Increase — When a manufacturer raises the list price (WAC) of an existing drug — a common practice that has driven much of the growth in U.S. drug spending.
- Medicare Drug Negotiation — The process under the Inflation Reduction Act where CMS negotiates a "maximum fair price" directly with manufacturers for select high-cost Medicare drugs.
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About This Definition
This definition is part of the DrugPrice Drug Pricing Glossary — 34 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.