The Biden administration on Thursday reached a milestone in Democrats' decades-long effort to make use of Medicare to lower prescription drug costs by announcing latest prices for the primary 10 drugs negotiated between the federal program and drugmakers.
But the announcement is just the start of a contentious, multi-step process that might save taxpayers and older Americans more cash and, over time, put more pressure on drug corporations. It's a key provision of the inflation-fighting bill signed by President Joe Biden, which took effect almost exactly two years ago.
The agreed priceswhich can take effect in 2026, set a precedent for the subsequent round of negotiations starting next yr. These talks are more likely to affect the costs of dozens of other widely used drugs made by the world's largest pharmaceutical corporations in the approaching years.
“I think people should assume this is just the beginning. These are just the first 10 drugs,” says Leigh Purvis, a drug policy director on the AARP Public Policy Institute, an arm of the influential lobbying group that represents people over 50 and advocates for Medicare negotiating powers.
“Sometimes people get upset that their medication is not on the list, even though it will be on the list at some point in the future if they are taking a medication that has a high cost,” Purvis added.
It's unclear how much lower the negotiated prices are than the present net prices of the primary ten drugs heavily discounted by Medicare Part D plans. These net prices aren't publicly available, making it difficult to know the way much a Medicare plan and patient would actually save on a specific drug when negotiated prices take effect in 2026. Copayments could also vary depending on a patient's Part D plan.
“It's hard to know the starting point because … those numbers are not publicly available,” said Tricia Neuman, executive director of the Medicare Policy Program on the health policy research organization KFF, referring to net prices after rebates.
Nevertheless, the Biden administration estimates that the renegotiated drug prices will end in net savings of about $6 billion for the Medicare program and out-of-pocket savings of $1.5 billion for beneficiaries in 2026 alone.
Negotiations “seemed to go relatively smoothly — the overall savings are pretty impressive,” Neuman said. She added that the quantity of savings will increase over time as prices for extra drugs are negotiated in future rounds.
Price negotiations could also put pharmaceutical corporations under greater pressure in the approaching years. Patent protection for a lot of drugs in the primary round of negotiations will soon expire. This will open up the market to cheaper generics, which in turn will result in a lack of sales.
For example, Bristol-Myers SquibbThe pharmaceutical company's blood thinner Eliquis is ready to lose its patent protection within the USA on April 1, 2028. In certain EU markets, patent protection for the successful drug may even expire in 2026.
But over time, drugs which might be much further along of their lack of market exclusivity could also be chosen for future rounds of negotiations, Leerink Partners analyst David Risinger said in a research note on Thursday.
From February 2025The Biden administration will select as much as 15 additional drugs to be subject to the subsequent round of price negotiations, with the brand new prices taking effect in 2027. Manufacturers have until the tip of February to come to a decision whether to take part in this system – a no brainer for the businesses, as they otherwise face high excise taxes or lack of access to the federal Medicare and Medicaid programs.
“It's only going to get more painful as time goes on,” Jeff Jonas, portfolio manager at Gabelli Funds, said in a press release on Thursday. He noted, for instance, that the subsequent round of price negotiations will likely include: Novo Nordisk's best-selling diabetes drug Ozempic.
Jonas added that there was “some speculation that the government had been lenient with pharmaceutical companies this year because, on the one hand, it is an election year and this is the first time they have done something like this.”
After the second round, the Centers for Medicare and Medicaid Services will have the opportunity to barter prices for 15 more drugs that may take effect in 2028. Starting in 2029, that number will rise to twenty per yr.
CMS will select only those drugs for Medicare Part D which might be covered in the primary two years of negotiations. For the round that takes effect in 2028, it is going to add more specialty drugs which might be covered by Medicare Part B and are typically administered by physicians.
This could pose a greater threat to the pharmaceutical industry because prices for drugs under Medicare Part B will not be as high as those for drugs under Part D.
“Because the discounts are limited, I expect they will continue to decline compared to the heavily discounted Part D drugs,” Risinger said in an interview with CNBC, referring to drugs covered by Part B.
Jonas noted that negotiations on price changes in 2028 could include some vital cancer drugs, akin to Merck's blockbuster chemotherapy Keytruda.
Vice President Kamala Harris, the Democratic presidential candidate, will likely attempt to expand the negotiating room and “probably be more aggressive on the discounts” if elected, Jonas said.
But Neuman said it is going to rely upon which party controls the House and Senate whether or not they can pass laws to strengthen that policy. Harris herself needed to solid a tie-breaking vote within the Democratic-dominated Senate to pass the unique bill.
“There is some interest from Democrats in Congress to get this done, but of course the law will depend on which party is in control,” Neuman said.
The pharmaceutical industry argues that the negotiations could lead on to a lack of sales and profits in addition to a lack of innovation in the long run.
For example, Steve Ubl, CEO of PhRMA, the pharmaceutical industry's largest lobby group, said in a press release on Thursday that price negotiations could lead on to a discount within the variety of treatments for cancer, mental illness, rare diseases and other conditions because they “fundamentally change” the incentives for drug development.
Medicare can begin negotiating prices for small molecule drugs as early as nine years after FDA approval, in comparison with 13 years for biologics. Small molecule drugs are made out of low molecular weight chemicals, while biologics are derived from living sources akin to animals or humans.
The industry argues that this distinction will discourage corporations from investing in small molecule drugs.
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