Skip to main content

Squeezing the Balloon: Fed Actions Shift Drug Cost Pressures

Analysis  |  By Laura Beerman  
   June 08, 2023

A CareFirst pharmacy exec talks Inflation Reduction Act ripple effects with HealthLeaders.

"It's like a balloon. When a squeeze inflates drug costs in one place, you have to reign them in somewhere else."

This analogy from Mandi Poplawski, VP of Pharmacy Management for CareFirst BlueCross BlueShield, sums up the pressurized landscape of prescription drug cost management in the U.S. The latest squeeze? The Inflation Reduction Act (IRA). Poplawski believes that the IRA represents "the largest changes to the Medicare Part D program since its inception in 2006."

Other industry insiders agree. Their drug cost views and Poplawski's form HealthLeaders' "What to Watch" list as part of Payer Week—five days of in-depth coverage spotlighting the significant roles and contributions of health insurers. Our week-long theme is Medicare Advantage in the Hot Seat: Challenges and Opportunities.

Drug costs: Today's top 3

Poplawski identifies three current issues that strain the delivery system for Medicare and beyond:

  1. The high cost of prescription drugs for all stakeholders;
  2. The MA donut hole for Medicare beneficiaries; and
  3. CMS's new ability to negotiate Medicare drug prices.

"The high cost of drugs is not specific to Medicare, but it hits beneficiaries harder," stresses Poplawski. "Seniors are often on fixed incomes. This can affect treatment access and nonadherence."

An added pressure is the MA "donut hole." Also called the coverage gap, the donut hole sits between annual member spending limits and the lower cost shares of the catastrophic coverage phase. In 2023, the donut hole applies to spending between $4,660 and $7,400.

"The donut hole is still a factor. The ACA and actions by the Biden Administration are closing the gap but those costs are still a significant concern."

To these factors, Poplawski adds a key IRA provision: CMS authority to negotiate Medicare drug costs with manufacturers.

CMS plays PBM

With negotiation ability, Poplawski notes that "CMS is stepping into a PBM role": setting a maximum fair price for select drugs in the Medicare program (original, MA, and Part D). This "all-in price," says Poplawski, will "trickle down across the whole supply chain"—the squeeze of the balloon she referred to previously.

The pressure starts with lower prices for select drugs:

  • 10 Part D drugs, effective Jan. 1, 2026;
  • Another 15 in 2027 (Part D) and 2028 (Part D or Part B); and
  • 20 Part B or D drugs annually thereafter.

Per its initial guidance, CMS will announce the first 10 drugs on Sept. 1, 2023.

Impacts on cost, utilization, and utilization management

Poplawski believes that lower drug costs under the IRA will drive higher costs elsewhere and identified three impact areas:

  1. Increased utilization, Part D costs, and utilization management for select drugs;
  2. Whether CMS drug price negotiations will affect other lines of business; and
  3. How manufacturers will react.

The IRA will shift drug costs liability from the government and beneficiaries to health plans. As a result, says Poplawski, "costs will go up significantly for the small subset of members that drives more liability."

This in turn will increase utilization management for prescription drugs (e.g., prior authorization, step therapy, quantity limits).

Dr. Adam Fein from Drug Channels notes that—under the IRA—Part D plans will no longer have an incentive to steer members toward higher list price drugs, which speeds entry into the catastrophic coverage phase where plans have no liability.

Impacts on multiple lines of business

Poplawski wonders how CMS Medicare price controls could apply to other lines of business.

HealthLeaders notes that this "other" still includes Part D plans because they will be impacted differently by the new cost negotiations than MA plans with embedded prescription drug coverage (MA-PD).

Here, we see bigger predictions from Drug Channels' Fein. Noting that standalone drug plans can't capture the added medical-side savings from better medication adherence, Fein predicts that payers will steer members toward MA-PD versus Part D plans.

"We expect Medicare Advantage plans to keep utilization management levels below PDPs as a strategy to attract more seniors to select MA-PD plans," writes Fein.

Impacts on other stakeholders

Poplawski does not go as far as Fein on Part D market impacts. She does site three possibilities, however, for the IRA's impact beyond health plans:

  1. Manufacturers could consider new ways to make up for lost revenue (e.g., raise the price of drugs not included in CMS negotiations).
  2. They could align cost control strategies with the IRA (e.g., become a category leader for negotiated drugs).
  3. PBMs may need to shift strategies too (e.g., redefine their value proposition now that CMS can negotiate prices).

Poplawski named other trends to watch: the end of manufacturer rebate caps in Medicaid, the impact of site-neutrality of Part B drug costs, and the white hot biosimilars market.

Watch for a follow-up exclusive with the CareFirst VP in the months to come.

Editor's note: This story was updated on 6/9/23 with the correct name for the writer of Drug Channels, Dr. Adam Fein. HealthLeaders regrets this error. 

Laura Beerman is a contributing writer for HealthLeaders.


The Inflation Reduction Act represents "the largest changes to the Medicare Part D program since its inception in 2006."

This from Mandi Poplawski, VP of Pharmacy Management for CareFirst.

Poplawski goes on to share the drug cost issues to watch in 2023 and beyond.

Get the latest on healthcare leadership in your inbox.