Medicare announces results of drug price negotiations

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The U.S. government said Thursday that it could save taxpayers $6 billion on the prices of 10 commonly used prescription drugs by granting it new authority to use Medicare's market power to lower the cost of brand-name drugs.

Prices for the drugs, which include two common blood thinners, several diabetes drugs and a cancer pill, won't take effect until 2026. But Thursday's announcement by the Biden administration is nonetheless an important step in a years-long process launched by the Inflation Reduction Act, which allowed the U.S. government for the first time to directly negotiate the prices of select drugs under the agency's jurisdiction.

“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,” President Joe Biden said in a statement.

The pharmaceutical industry has fiercely opposed price negotiations, which it says are unconstitutional and more akin to price fixing, as the law provides for heavy fines for companies that choose not to participate. But so far, pharmaceutical companies' and industry associations' claims have been rejected or dismissed in court, allowing the process to proceed.

According to CMS, negotiated prices for the 10 drugs are, on average, 38 to 79 percent below the drugs' current wholesale costs or the list prices set by drug manufacturers. Paying these new prices should save Medicare beneficiaries an estimated $1.5 billion in out-of-pocket costs in 2026, CMS said.

However, determining government savings is complicated. Currently, Medicare-mandated health insurers that cover drugs under Part D of the program negotiate rebates with drug manufacturers, resulting in nonpublic net prices. There are also statutory rebates depending on the phase of coverage within Medicare Part D.

For drugs with deep discounts or rebates, such as diabetes medications, the price negotiated by Medicare may not be much lower than the net price you already pay. Other select drugs, such as the blood cancer drug Imbruvica, are not discounted as much, so the savings over the current net price are likely to be greater.

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

CMS is required to publish a statement of the prices it sets for the first ten drugs by March 1, 2025.

The 10 drugs are the first of 60 that Medicare will negotiate prices for over the next few years. Under the IRA, only brand-name drugs from a single source with no generic competition can be selected, and Medicare must choose from the 50 highest-spending drugs in Part D and Part B, which covers physician-administered drugs. (Part B drugs, however, are exempt from the first two rounds of negotiations.)

In addition, drugs must have been available in the United States for seven or 11 years, depending on whether they are small molecules or biologics. The pharmaceutical industry claims this requirement will shift the incentives for its research and development investments in favor of small molecules, which are convenient for patients to take as oral drugs and provide an important platform for treating certain diseases, such as those of the brain.

Pharmaceutical companies also argue that price negotiations under the IRA will, over time, affect their ability to invent and develop new drugs. In the short term, however, many of the companies involved in the first round of negotiations believe they can absorb the expected financial losses from lower prices.