Medicare set to begin direct price negotiations with drugmakers

The U.S. Department of Health and Human Services (HHS) has named the first 10 medications for which Medicare can now negotiate prices directly with pharmaceutical manufacturers—a move that stands to lower costs for consumers, pharmacies, benefit providers and other buyers of prescription drugs.

Under the Medicare Drug Price Negotiation Program, enabled by the Biden administration’s Inflation Reduction Act, for the first time Medicare will be able to bargain on pricing with drugmakers.

The selected drug list for the first round of negotiation includes Eliquis (blood thinner), Jardiance (type 2 diabetes, heart failure), Xarelto (blood thinner), Januvia (type 2 diabetes), Farxiga (type 2 diabetes, heart failure, chronic kidney disease), Entresto (heart failure), Enbrel (rheumatiod and psoriatic arthritis), Imbruvica, Stelara (psoriasis, Crohn’s disease, ulcerative colitis) and the insulin diabetes treatments Fiasp (including FlexTouch and PenFill) and NovoLog (including FlexPen and PenFill).

Those 10 medications represented $50.5 billion, or about 20%, of total Medicare Part D gross covered prescription drug costs between June 1, 2022, and May 31, 2023, the time period used to determine which drugs would be eligible for negotiation, according to HHS. The department said Medicare members taking the 10 drugs under Part D paid a combined $3.4 billion in out-of-pocket costs last year.

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U.S. overdue in cutting drug costs

In remarks on Tuesday, President Joe Biden noted that the Veterans Administration already negotiates directly with manufacturers and pays almost 50% less than Medicare for prescription medicines. Medicaid also pays nearly half the percentage of Medicare’s drug costs but does so under a manufacturer rebate program that slashes prices for states and the federal government.

“Today, my administration announced the first 10 Medicare Part D drugs that have been selected for price negotiation—for the first time ever. They are among the most common and costly prescriptions that treat everything from heart failure, blood clots, diabetes, arthritis, Crohn’s disease and more,” Biden said. “When implemented, prices on negotiated drugs will decrease for up to 9 million seniors. These seniors currently pay up to $6,497 [each] in out-of-pocket costs per year for these prescriptions. In addition, the nonpartisan Congressional Budget Office reports that this will save taxpayers $160 billion by reducing how much Medicare pays for drugs through negotiation and inflation rebates.”

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The first 10 drugs for which Medicare will negotiate prices directly with pharmaceutical firms. / Image courtesy of the Centers for Medicare & Medicaid

Plans call for price negotiations with participating drug companies to begin this fall and run to Aug. 1, 2024, with the negotiated pricing slated to be published Sept. 1, 2024, and become effective in 2026. Going forward, the Centers for Medicare & Medicaid Services (CMS) would select up to another 15 drugs covered under Medicare Part D for negotiation in 2027, up to 15 additional drugs covered under Parts B and D for 2028, and up to 20 more drugs for each year thereafter.

“For far too long, pharmaceutical companies have made record profits while American families were saddled with record prices and unable to afford life-saving prescription drugs. But thanks to the landmark Inflation Reduction Act, we are closer to reaching President Biden’s goal of increasing availability and lowering prescription drug costs for all Americans,” HHS Secretary Xavier Becerra commented. “Although drug companies are attempting to block Medicare from being able to negotiate for better drug prices, we will not be deterred. The Biden-Harris Administration will continue working to ensure that Americans with Medicare have access to innovative, life-saving treatments at lower costs.”

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What giving Medicare drug bargaining power will mean

The federal government is the nation’s biggest purchaser of prescription medicines, and Medicare represents the largest single public payor for drugs, spending a total of $216 billion for Part D alone, based on CMS’ latest available data. That gives Medicare massive bargaining leverage with drugmakers—compared with the fragmented negotiations by health insurers, PBMs and other payors—and the pricing it obtains likely would lower the negotiation baseline for other buyers, helping to bring down overall drug costs.

Such bargaining power has been the norm across Europe and in other nations with public health care systems. Under that model, the government selects the drugs it will cover and negotiates the pricing, and medications deemed too costly are excluded from the public formulary. Then, any private insurers follow the government-negotiated rate.

“Today marks a significant and historic moment for the Medicare program with the announcement of the first drugs selected for Medicare drug price negotiation,” CMS Administrator Chiquita Brooks-LaSure stated. “Our goal with these negotiations is to improve access to some of the costliest drugs for millions of people with Medicare while driving competition and innovation.” 

Biden noted in his comments on the Medicare Drug Price Negotiation Program that the administration’s efforts to cut drug costs are staunchly opposed by the pharmaceutical industry, which has filed eight lawsuits.

“Big Pharma has been charging Americans more than three times what they charge other countries simply because they could,” he said, adding, “Last year, the industry spent $400 million in lobbying fees to try to stop the Inflation Reduction Act and block the ability of the federal government to lower drug prices. And when they failed, they went to federal court to sue the government in an attempt to maintain their exorbitant prices.”

Americans have dealt with much higher Rx costs than other countries due to the current U.S. drug pricing model, Biden and other administration officials said. / Photo by Russell Redman

Drug industry cites risk to competition

Medicare didn’t provide outpatient prescription drug benefits until Medicare Part D was created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, and launched at the start of 2006. The legislation, however, prohibited the federal government from negotiating with drug companies and establishing a drug formulary, as a concession to the pharmaceutical industry. The latter contends that giving a government agency bargaining power in drug pricing would curtail Part D competition, since insurance providers lower premiums and deductibles through savings they negotiate.

The Medicare Drug Price Negotiation Program represents a “rushed process focused on short-term political gain rather than what is best for patients,” Stephen Ubl, president and CEO of Pharmaceutical Research and Manufacturers of America (PhRMA), said in a statement on Tuesday.

“Many of the medicines selected for price-setting already have significant rebates and discounts due to the robust private market negotiation that occurs in the Part D program today,” he explained. “Giving a single government agency the power to arbitrarily set the price of medicines with little accountability, oversight or input from patients and their doctors will have significant negative consequences long after this administration is gone. And insurance companies and their PBMs may further restrict access to medicines through increased utilization management, higher co-pays and more restrictive formularies.”

Ubl also pointed to the enormous research-and-development investments made by the pharmaceutical industry to drive innovation in medications.

“Politics should not dictate which treatments and cures are worth developing and who should get access to them. The cancer moonshot will not succeed if this administration continues to dismantle the innovation rocket we need to get there. The harm will spread beyond cancer and impact people with rare diseases, mental health illnesses and other terrible diseases,” he stated. “American patients deserve better. We will continue to fight for solutions that lower costs for patients at the pharmacy counter, address abusive practices by insurers and PBMs, and mitigate the harm this law may have for future generations.”