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Medicare’s new authority to negotiate drug prices will result in estimated savings of $6 billion for the federal government and a $1.5 billion reduction in out-of-pocket costs for seniors when the lower prices take effect in 2026, the Biden administration announced Thursday.
The bargaining program, authorized by the Inflation Reduction Act of 2022, has been a central theme of the White House’s efforts to lower Americans’ cost of living, including for prescription drugs, after inflation soared during President Joe Biden’s administration. Vice President Kamala Harris is expected to continue fighting to lower drug prices ahead of the November election.
“It’s a relief for the millions of seniors who take these drugs to treat heart failure, blood clots, diabetes, arthritis, Crohn’s disease and more – and it’s a relief for American taxpayers,” Biden said in a statement.
The administration is scheduled to release more information Thursday morning on the results of negotiations with the drug companies that have tried – so far unsuccessfully – to block the program in federal court. But officials are not expected to provide details of the cost reductions for each drug.
The first round of negotiations focused on ten of the most commonly used and expensive drugs taken by Medicare beneficiaries: Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica and Stelara, as well as Fiasp and certain other Novo Nordisk insulins, including NovoLog.
The estimated $6 billion in savings is based on what Medicare will pay for those drugs in 2023, Chiquita Brooks-LaSure, director of the Centers for Medicare and Medicaid Services, told reporters. The figure takes into account discounts and rebates that drugmakers give to Part D plans, or what is known as the net price, according to the administration.
The Congressional Budget Office estimates that the negotiated program will save Medicare $100 billion over a decade.
Many of the millions of Medicare beneficiaries taking the negotiated drugs will see savings at the pharmacy, although that depends on their drug coverage through Medicare Part D, said Spencer Perlman, head of health research at Veda Partners, a policy advisory firm for institutional investors. For many, drug costs are typically based on the drugs’ list prices — before rebates and discounts for Part D plans — and those prices will be lower through the program.
But the benefit to insureds will be tempered by another provision of the Inflation Reduction Act – a $2,000 annual cap on out-of-pocket costs in Part D plans that takes effect in January. This will limit the burden on patients of high drug costs.
The powerful pharmaceutical industry, unaccustomed to losing on Capitol Hill, has tried to halt the negotiation process by filing several lawsuits in federal courts across the U.S. claiming the program is unconstitutional in various ways. Several companies have said they were essentially forced to participate or face heavy penalties or exclusion from the Medicare and Medicaid markets.
But just last week, a federal district judge in Ohio dismissed one of these lawsuits. This means that the pharmaceutical companies and their allies have already lost the seventh lawsuit.
Although drugmakers have repeatedly said that price negotiations would hurt their businesses and reduce innovation, some of them suggested in recent quarterly earnings calls that the impact would be less severe.
“Now that we know the final price, we are increasingly confident that we can manage the impact of the IRA on Eliquis,” said Chris Boerner, CEO of Bristol Myers Squibb, adding, “I want to continue to emphasize that we strongly oppose government price setting under the IRA.”
“While this may be manageable in the short term for our first line of drugs, in the long term this policy is neither good for innovation nor good for patients in the United States,” said Vasant Narasimhan, CEO of Novartis, the maker of the heart failure drug Entresto.
Other manufacturers whose drugs are in initial negotiations include Merck, the Janssen division of Johnson & Johnson, Novo Nordisk and AstraZeneca.
According to experts, pharmaceutical companies are more concerned about future rounds of negotiations, which will involve a larger number of drugs, some of which no longer have high discounts.
“It’s more a question of ‘We’ve now opened the Pandora’s box of price negotiations’ and ‘Will this spill over into commercial markets?’, which is what everyone expects,” said Geoffrey Joyce, director of health policy at the USC Schaeffer Center for Health Policy and Economics.
The industry’s main lobby group warned that the negotiating program – which it called “government price fixing” – would harm research into new drugs.
“The IRA also fundamentally changes the incentives for drug development,” said Steve Ubl, CEO of Pharmaceutical Research and Manufacturers of America (PhRMA), in a statement, noting that companies are already changing their research programs. “Drug development is a long and complex process, and the negative impacts of these changes will not be fully realized for decades.”
CMS considered several factors in developing its initial proposal, including the clinical benefits of the drugs and the price of alternatives. The agency also held hearings so patients and others could voice their opinions on the selected drugs.
Health Secretary Xavier Becerra told reporters there had been “considerable back and forth” during the negotiations.
“They had the opportunity to put forward their own price proposals and make counter offers throughout the negotiation,” he said. “After much back and forth, either we accepted an offer or another company accepted our offer.”
After this first round, Medicare can negotiate prices for an additional 15 drugs for 2027 and again for 2028. Starting in 2029, that number increases to 20 drugs per year.
During the first two years of negotiations, only Part D drugs purchased at pharmacies will be included. Medicare will also include Part B drugs administered by physicians in the plan starting in 2028.
CMS will announce the names of the drugs in the next round by February 1. The negotiated prices will take effect in 2027.
