Medicare will negotiate the prices of top-selling drugs for blood clots, diabetes, cancer and arthritis, flexing newly granted authority that for the first time allows the insurance program to use its market power to lower the cost of certain medicines.
On Tuesday, the Biden administration released a list of 10 drugs that will be included in the first round of negotiations, which will run over the next year and produce prices that take effect in 2026.
Among the drugs on the list are the widely used blood thinners Eliquis and Xarelto, which made their respective makers more than $10 billion in U.S. sales last year, as well as the diabetes treatments Januvia and Jardiance.
The list also includes AbbVie and Johnson & Johnson’s leukemia drug Imbruvica, Amgen’s anti-inflammatory therapy Enbrel and Novartis’ heart failure medicine Entresto. Rounding out the initial 10 were AstraZeneca’s Farxiga, J&J’s Stelara and Novo Nordisk’s Fiasp.
More than 8 million people covered by Medicare used the drugs between June 2022 and May 2023, according to a fact sheet provided by the Centers for Medicare and Medicaid Services. Gross spending over the period surpassed $50 billion, or about 20% of prescription drug costs under the so-called Part D benefit.
While a starting point, the announcement moves forward an effort to expand the federal government’s role in determining what drugmakers can charge for their products. Democrats gave Medicare its new negotiation powers via last year’s Inflation Reduction Act, which passed Congress along party lines.
Known as the IRA for short, the law fulfilled policy goals long-sought by Democrats. But its drug pricing provisions, which also cap out-of-pocket costs on insulin for people in Medicare, are popular among voters of both parties.
“For far too long, Americans have paid more for prescription drugs than any major economy,” President Joe Biden said in a statement. “And while the pharmaceutical industry makes record profits, millions of Americans are forced to choose between paying for medications they need to live or paying for food, rent, and other basic necessities. Those days are ending.”
For the pharmaceutical industry, the IRA was a significant — and rare — political defeat after years of fiercely contesting any legislative attempt to regulate drug pricing in the U.S.
Six large drugmakers, along with the powerful lobby PhRMA, have since sued to block the law and its implementation in lawsuits filed over the past two months. They claim the law is unconstitutional and, rather than setting up a process of negotiation, unfairly compels drugmakers to accept terms set by the government or endure ruinous fines.
“Although drug companies are attempting to block Medicare from being able to negotiate for better drug prices, we will not be deterred,” Xavier Becerra, head of the Department of Health and Human Services, said in a Tuesday statement.
To determine the 10 drugs included in Tuesday’s list, Medicare was directed to identify the medicines on which it spent the most under the so-called Part D benefit, which covers products taken outside of a doctor’s office. Therapies with generic competitors were not eligible, nor were products approved within a certain number of years.
By next February, CMS will send an initial price offer to the companies, which then have one month to counteroffer. Further meetings can then take place, with CMS announcing the “maximum fair price” it ultimately determines by Sept. 1, 2024.
Those prices will take effect Jan. 1, 2026, and remain in place until a drug becomes ineligible for the program, such as when a generic competitor enters the market. For some of the initial 10 selected that may be quite soon. Januvia, for instance, is protected from competition until May 2026, per Merck’s most recent annual filing.
Medicare will select more drugs for negotiation each year, eventually including Part B medicines and expanding to 20 per year from 2029 onward.
The minimum discount required under the IRA varies based on a drug’s years on market, but must be at least 25%. However, it’s unclear exactly how the resulting savings will be used. Some people covered by Medicare could benefit from lower coinsurance based off a drug’s price, as well as reduced liability during their deductible phase. Savings might also help reduce premiums.
“There is no specific guarantee within the law that any of the savings the government derives from the so-called negotiations will be passed on to patients,” said Catherine Owen, U.S. commercial general manager for Bristol Myers Squibb, which sells Eliquis along with Pfizer.
Bristol Myers and its pharmaceutical peers have also warned the law will impact their investment in drug research and development, and push them to prioritize biologic medicines over chemical pills.
According to Owen, Bristol Myers recently decided against running a lengthy study of an experimental small molecule drug called iberdomide in newly diagnosed multiple myeloma because of the IRA’s negotiation timeline.
The 10 drugs included on Medicare's initial list include widely used therapies for common diseases.
|Drug||Manufacturer||Use||Medicare spending, June 2022 - May 2023 (millions)|
|Eliquis||Bristol Myers, Pfizer||Blood thinner||$16,483|
|Jardiance||Eli Lilly, Boehringer Ingelheim||Diabetes, heart failure||$7,058|
|Xarelto||J&J, Bayer||Blood thinner||$6,031|
|Januvia||Merck & Co.||Diabetes||$4,087|
|Farxiga||AstraZeneca||Diabetes, heart failure||$3,268|
|Imbruvica||AbbVie, J&J||Blood cancer||$2,664|
|Fiasp / Novolog||Novo Nordisk||Diabetes||$2,577|
Editor’s note: This story has been updated to include figures from CMS, as well as a statement from President Biden.