The Department of Veterans Affairs negotiates directly with pharmaceutical manufacturers and pays substantially less for the same drugs than Medicare. That comparison was not an accident, a design flaw, or an oversight. It was the product of deliberate legislative choice — a statutory prohibition written into the 2003 law that created Medicare Part D, which for nearly 20 years foreclosed direct federal price negotiation for the program that covers more than 60 million Americans.
The Creation of Medicare Part D
Before 2006, Medicare provided no outpatient prescription drug coverage. Beneficiaries who needed coverage purchased it through supplemental insurance or paid out of pocket. The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003, signed by President Bush in December of that year, created the Medicare Part D benefit — the first major expansion of Medicare since the program’s founding in 1965.
Part D did not create a government-administered drug plan. Instead, it created a framework under which private insurance plans competed to offer prescription drug coverage to Medicare beneficiaries. The federal government would subsidize the premiums and costs of these private plans, but the plans themselves would negotiate prices directly with drug manufacturers.
This design was, from the outset, contested. Proponents argued that market competition among plans would generate cost savings without requiring government price-setting. Critics argued that allowing the largest single payer in the country to use its purchasing power to negotiate lower prices — as the VA did — would produce far greater savings.
The Non-Interference Clause
Embedded in the 2003 law was a provision that settled the question in favor of the market competition model. Section 1860D(i) of the statute reads: “NONINTERFERENCE — In order to promote competition under this part and in carrying out this part, the Secretary — (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and (2) may not require a particular formulary or institute a price structure for the reimbursement of covered Part D drugs.”
As the Congressional Research Service explained in its analysis of the clause, this provision expressly forbade the Secretary of Health and Human Services from interfering with drug price negotiation between manufacturers and Medicare drug plan sponsors, and from instituting a formulary or price structure for prescription drugs. The explicit prohibition on HHS negotiation was paired with the prohibition on a government formulary — and the two worked together, because without formulary authority (the ability to exclude drugs from coverage), a negotiator lacks meaningful leverage.
The non-interference clause was the subject of significant lobbying. Public reporting has documented that the pharmaceutical industry’s support for the creation of Medicare Part D was conditioned on the non-negotiation framework. The quid pro quo — drug coverage for seniors in exchange for a prohibition on federal price negotiation — was broadly understood at the time the law was debated and signed.
The VA Comparison
The contrast between Medicare and the VA illuminates what the non-interference clause cost in practical terms. The Department of Veterans Affairs negotiates directly with drug manufacturers through its national formulary — a preferred drug list that gives VA clinical leverage to steer prescriptions toward drugs for which it has negotiated favorable terms. The VA also receives statutory discounts under the Federal Supply Schedule and additional discounts if drug prices rise faster than general inflation.
The price difference is substantial and well-documented. A 2021 Government Accountability Office report, commissioned by Senator Bernie Sanders, found that in 2017, the VA paid 54 percent less per unit for a sample of 399 brand-name and generic prescription drugs than Medicare Part D. For brand-name drugs specifically, the VA paid 49 percent less; for generic drugs, 48 percent less. Of the 399 drugs examined, 233 were at least 50 percent cheaper when purchased by the VA, and 106 were at least 75 percent cheaper.
A 2021 Congressional Budget Office analysis of 176 top-selling brand-name drugs confirmed the pattern. The average net price per standardized prescription ranged from $118 in Medicaid to $343 in Medicare Part D. The VA paid an average of $190 per standardized prescription — between the Medicaid and Medicare Part D figures — reflecting its mix of statutory minimums and direct negotiation. For specialty drugs, the Medicare Part D average was $4,293 per standardized prescription; the VA average was $2,002.
The mechanisms behind the VA’s lower prices — national formulary, volume purchasing, the ability to steer prescribers toward preferred drugs — are precisely the mechanisms the non-interference clause denied to Medicare.
Years of Legislative Effort
The non-interference clause was a persistent target of Democratic legislative efforts throughout the period between 2003 and 2022. The House passed the Medicare Prescription Drug Price Negotiation Act in 2007, which would have repealed the clause. The Senate did not advance it. In 2019, the House passed the Elijah E. Cummings Lower Drug Costs Now Act, which would have required HHS to negotiate maximum prices for at least 25 drugs. That bill died in the Senate.
The CBO assessed the clause’s repeal on multiple occasions and consistently found that repealing the non-interference provision alone — without giving HHS a formulary or other tools to create negotiating leverage — would have a “negligible effect on federal spending.” The core of the CBO’s analysis was that negotiation without the ability to exclude drugs from coverage or steer beneficiaries toward preferred options is, in practical terms, not negotiation at all. A seller can decline a buyer’s offer without consequence if the buyer is legally required to cover the product regardless.
The Inflation Reduction Act of 2022
The Inflation Reduction Act (IRA), signed by President Biden in August 2022, repealed the non-interference clause and authorized HHS to negotiate drug prices directly for a subset of high-cost Medicare drugs. The law did not create a general formulary authority, but it established a process with sufficient structure to give CMS meaningful leverage.
The IRA’s negotiation framework applies to drugs covered by Medicare Part D (outpatient prescription drugs) and Medicare Part B (physician-administered drugs), but with significant constraints on scope:
- Beginning in 2026, the negotiated prices will apply to the first 10 selected Part D drugs.
- 15 additional Part D drugs will be negotiated for 2027.
- Up to 15 Part B and Part D drugs will be negotiated for 2028.
- 20 additional drugs will be negotiated in each subsequent year.
Drugs are selected based on their Medicare spending and the absence of generic or biosimilar competition. Small-molecule drugs become eligible for negotiation after 9 years on the market without generic competition; biologics become eligible after 13 years.
The “maximum fair price” resulting from negotiation is structured around a ceiling based on the drug’s average non-federal manufacturer price, with discounts required of at least 25 percent for drugs that have been on the market 9 to 11 years and at least 60 percent for drugs that have been on the market 16 or more years.
The First Round of Negotiations
In August 2024, CMS announced the results of the first round of negotiations, covering 10 Part D drugs for which negotiated prices will take effect in 2026. The results showed discounts ranging from 38 to 79 percent off list prices, according to the Center for Medicare Advocacy. Selected negotiated prices include:
- Eliquis (apixaban), a blood thinner: $231 per 30-day supply, down from a list price of $521.
- Januvia (sitagliptin), a diabetes drug: $113, down from $527.
- Jardiance (empagliflozin), for diabetes: $197, down from $573.
- Enbrel (etanercept), for rheumatoid arthritis: $2,355, down from $7,106.
- Stelara (ustekinumab), for psoriasis and Crohn’s disease: $4,695, down from $13,836.
- Fiasp/NovoLog insulin products: $119, down from $495.
HHS projected that the first round of negotiations would save the Medicare program at least $6 billion in 2026, with an additional $1.5 billion in out-of-pocket savings for beneficiaries in that year. The 10 drugs covered 8.8 million Medicare enrollees in 2023.
The negotiated prices are substantially lower than list prices but in most cases remain above the prices paid by the VA or foreign government health systems for the same drugs. The IRA’s negotiation process operates within constraints — no government formulary, a statutory pricing floor structure — that limit how far prices can move. The VA achieves deeper discounts partly through mechanisms the IRA does not replicate: mandatory formulary inclusion conditions, therapeutic-class competition across a national formulary, and long-standing institutional negotiating relationships.
The longer-term trajectory of Medicare drug price negotiation — which drugs are selected in subsequent years, how the ceiling price formulas function in practice, and whether the scope of the program expands — will shape how the 20-year gap between Medicare and VA drug pricing eventually closes, if at all.
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