Medicare negotiations for lower drug prices near conclusion

One of the first things President Biden highlighted in his announcement that he was withdrawing from the 2024 presidential race was his work on prescription drug pricing. And the biggest accomplishment in that area was the law that allows Medicare to negotiate drug prices.

Vice President Kamala Harris can also claim credit for casting the deciding vote in the Senate to pass the Inflation Reduction Act.

Negotiating Medicare drug prices is something former President Donald Trump also talked about before backtracking on his campaign promise a few years ago.

Here’s what you need to know about the historic update to the seniors’ health care program.

These Medicare negotiations are a first

When Medicare Part D, which covers prescription drugs for seniors, was created nearly two decades ago, Congress prohibited it from negotiating prices. That meant that even though the program covers a large portion of the U.S. population (more than 50 million seniors), it couldn’t use that bargaining power to get lower prices.

The Inflation Reduction Act changed that, allowing negotiations between Medicare and drug companies for 10 drugs now, then up to 15 starting in 2025 and up to 20 by the end of the decade.

“Negotiating as a single entity will hopefully allow us to get a better deal,” Stacie Dusetzina, a professor of health policy at Vanderbilt University, told NPR in June. “Plus, there are specific rules that govern the negotiations, which gives us the ability to negotiate in places where we know prices are not as low as they could be.”

Each year, Medicare Part D spends more than $200 billion on drugs. But most of that spending is for a tiny fraction of the thousands of drugs Medicare covers, according to a report from the Kaiser Family Foundation. So the inflation-reduction law prioritized negotiations for drugs that were among the program’s most expensive. The gross cost of the first batch of drugs selected for Medicare negotiations was more than $50 billion between June 1, 2022, and May 31, 2023.

Negotiations are going well

Pharmaceutical companies and the government have been negotiating on a loop since February.

The official end of negotiations is August 1st and the agreed prices are expected to be announced on September 1st. Even though we are in the middle of an election period, this is how the timetable for negotiations was set more than a year ago.

“This is a historic milestone for the Medicare program, and we met all of our deadlines,” Dr. Meena Seshamani, who heads the Medicare program, told NPR in June.

Even though negotiations are nearing completion, the prices will not come into effect until January 2026.

Drugs are blockbusters

The government selected which drugs to negotiate based on a complex set of conditions set out in the Inflation Reduction Act. To begin with, the drugs had to be brand-name drugs with no generic alternatives (or biosimilar versions in the case of so-called biologics). The drugs also had to have been on the market for at least 7 years (or 11 years in the case of biologics) at the time Medicare selected them for negotiation.

The drugs being negotiated include Eliquis and Xarelto, two blood thinners used by millions of Medicare enrollees. The list also includes Jardiance and Farxiga for heart failure and diabetes, and Imbruvica for blood cancers.

On average, enrollees paid between $121 and $5,247 out of pocket in 2022 for these drugs, according to the Department of Health and Human Services.

There was a lot of secrecy to protect the integrity of the negotiations.

The government has said it will not announce them to the public for a month, but drug companies could do so sooner.

Drugmakers oppose negotiations

The pharmaceutical industry continues to fight the negotiations, and several companies have filed lawsuits against the government to stop the negotiated prices from going into effect. They say it is unconstitutional and constitutes price fixing, not true negotiation, because Medicare is a large purchaser.

Overall, they say this process will hurt drug research and innovation because companies will not bring certain drugs to market.

But what they are telling their investors about the negotiations is less pessimistic.

“We expect a net negative impact in 2025,” Johnson and Johnson Chief Executive Jennifer Taubert told investors earlier this month. “However, as we indicated in our business review last November, we expect, as a company, to grow 3% or more next year and then 5% to 7% by 2030.”

Even though J&J currently has two drugs under price negotiation with Medicare, Xarelto and Stelara for psoriasis, the company still expects fairly solid growth.

Novartis makes Entresto, a heart failure drug that is also under negotiation. The company has told investors it is broadly able to handle losses from Medicare price cuts, but that the situation could become tricky in the future as prices for new drugs are negotiated.

“In the long run, this policy is really not good for innovation, and it’s really not good for patients in the United States,” Novartis CEO Vasant Narasimhan told investors on July 18. “And if companies succeed, they do so by moving away from small molecule drugs.

Taxpayers and Medicare beneficiaries should save money

The impact on drug development is expected to be modest, however, according to the nonpartisan Congressional Budget Office. It estimates that 13 new drugs will not reach the market over the next 30 years, out of the 1,300 that are expected to do so.

When the CBO evaluated the bargaining portion of the inflation reduction bill and said it would save the government and taxpayers $98.5 billion over ten years.

Medicare beneficiaries who take these drugs should see more consistent copayments starting in 2026, when negotiated prices are scheduled to take effect.