Medicare reveals results of drug price negotiations

The U.S. government on Thursday said it stands to save taxpayers $6 billion on the prices it will pay for 10 widely used prescription drugs under its new authority to leverage Medicare’s market power to reduce the cost of brand-name medicines.

The prices for the drugs, which include two popular blood thinners, several diabetes treatments and a cancer pill, won’t take effect until 2026. But the Thursday announcement from the Biden administration is nonetheless an important step in a yearslong process established by the Inflation Reduction Act, which for the first time allowed the U.S. government to directly negotiate the prices of select drugs under the agency’s purview. 

“It’s a relief for the millions of seniors that take these drugs to treat everything from heart failure, blood clots, diabetes, arthritis, Crohn’s disease, and more — and it’s a relief for American taxpayers,” said President Joe Biden, in a statement. 

The pharmaceutical industry has fiercely opposed price negotiations, which it argues are unconstitutional and more akin to price setting given the steep financial penalties the law establishes for companies that choose not to participate. So far, however, the legal challenges brought by drugmakers and trade groups have been defeated or rebuffed in court, allowing the process to proceed.

According to CMS, the negotiated prices for the 10 drugs range from 38% to 79% lower, on average, than the medicines’ current wholesale acquisition cost, or list price set by drugmakers. Paying these new rates should save Medicare enrollees an estimated $1.5 billion in out-of-pocket costs in 2026, CMS said.

Determining the government’s savings is complicated, however. Currently, health plan sponsors contracted by Medicare to administer coverage of drugs under the program’s Part D benefit negotiate rebates from drugmakers, resulting in non-public net prices. There are also statutory discounts depending on the phase of coverage within Medicare Part D.

For drugs with extensive rebates or discounts, like for those that treat diabetes, the price Medicare negotiated may not be that much lower than the net price it already paid. Others that were selected, like the blood cancer drug Imbruvica, are not as heavily rebated, so the savings versus the current net price are likely higher.

Described in the law as a “maximum fair price,” the negotiated price must be the lower of either the drug’s average price in Medicare previously, or a certain percentage of the drug’s prior non-federal average manufacturer price. Drugmakers may choose not to accept the negotiated price, but would then either face a fine of up to 95% of their product’s U.S. sales or have to withdraw all of their drugs from Medicare and Medicaid.

CMS is required to publish an explanation for the prices it reached on the first 10 drugs by March 1, 2025.

The 10 drugs are the first of 60 for which Medicare will negotiate prices over the next several years. Under the IRA, only “single-source” brand name drugs without generic competition can be selected, and Medicare must choose from the 50 drugs with the highest spending in Part D and in Part B, which covers physician-administered medicines. (Part B drugs are exempted from the first two cycles of negotiations, however.)

Additionally, drugs must have been available in the U.S. for either seven or 11 years depending on whether they are, respectively, small molecules or biologics. The pharma industry has claimed this provision will skew incentives for their R&D investment away from small molecules, which, as oral medications, are convenient for patients to take and offer an important platform for targeting certain diseases, like those of the brain.

Drugmakers also argue price negotiations under the IRA will hurt their ability to invent and develop new medicines over time. In the near term, however, many of the companies involved in the first round of negotiations expect to manage the anticipated financial hit from the lower prices.