The federal government just identified the first 10 medications that will be subject to direct price negotiations with manufacturers, as part of a major new initiative to reduce prescription drug costs in Medicare.
All told, the 10 drugs on the list accounted for $50.5 billion in total spending in Medicare’s outpatient prescription drug program for the period between June 1, 2022, and May 31, 2023, according to the Department of Health and Human Services. That’s about one-fifth of what the program, known as Part D, spent on all prescription drugs during that period.
The announcement represents the first step in a process set to unfold over the coming year, with the government collecting data and public input, and then exchanging price offers with manufacturers over how much Medicare will pay for the named drugs.
This mechanism for negotiating prices exists because of the Inflation Reduction Act, President Joe Biden’s signature legislation that Democrats in Congress passed on party-line votes last year.
Whether the new initiative remains in place depends on whether its critics, including leaders of the drug industry and the Republican Party, manage to weaken, block or repeal it through new legislation and lawsuits.
At an afternoon White House event, Biden vowed to defend the new program, citing its importance to people struggling with high-cost medications.
“Instead of using all your energy to fight disease, you’re fighting insurance or drug companies for medicines that literally keep you alive,” Biden said. “On too many nights, too many Americans lay in bed staring at the ceiling, worrying what will happen if their spouse gets sick, their child gets sick or something else happens.”
A Year-Long Process And New Prices In 2026
If the negotiation process works as its champions hope, manufacturers will eventually agree to significant reductions in what they currently charge for these drugs.
The lower prices for these first 10 drugs would take effect in 2026, producing savings for Medicare ― and, by extension, the taxpayers who help fund it.
It would also mean savings for individual Medicare beneficiaries, mainly seniors and people with disabilities, who end up paying for drugs through premiums and out-of-pocket expenses. Those out-of-pocket expenses can be hundreds or thousands of dollars a year per drug, according to HHS.
“I think some of us who are younger or healthier can forget just how crippling drug costs can be for people who are on the Medicare program,” Chiquita Brooks-LaSure, administrator for the Centers for Medicare and Medicaid Services, told HuffPost in an interview. “They have thousands of dollars that they are spending every year to pay for these drugs.”
Alternatively, manufacturers could refuse to take what the government ends up offering. But in that case, they would face stiff financial penalties unless they choose to exit Medicare and other public programs altogether ― an option that would entail its own serious costs, given how much the companies rely on government insurance programs for revenue.
President Joe Biden is seeking to take further steps to reduce drug prices.
The governments of France, Germany, Japan and other economically advanced nations have long used their own versions of negotiation or regulation to keep drug prices down, which is why they and their citizens pay so much less than their American counterparts.
Now the U.S. government can negotiate prices, too, although in a much more limited way. The new authority extends only to what Medicare pays, which means it has no direct effect on private insurance rates. And to qualify for negotiation, drugs must satisfy several conditions tied to factors like whether they already face competition and how long they’ve been on the market.
But the new initiative’s reach is set to expand over time. The government can keep choosing new drugs for price negotiation, based on parameters that the Inflation Reduction Act has established, with the annual number of drugs selected for negotiation increasing to 20 in coming years.
And lawmakers in the future could always pass legislation to broaden the types of drugs subject to negotiation, as Biden proposed in his most recent budget. They could even extend negotiated prices to private insurance, an idea that advocates have long supported but one that’s never had quite enough votes ― even among Democrats ― to become law.
A Political And Legal Fight Will Continue
The possibility that the government could get even more leverage over prices in the future helps explain the strong opposition from the drug industry and its allies.
They have sued to block negotiation from going forward, arguing that it is unconstitutional. And they have long argued to lawmakers ― and to the public ― that negotiation will push down prices in ways that reduce the financial rewards for innovation, leading to less investment in research and ultimately fewer medical breakthroughs.
“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,” Stephen J. Ubl, president of the the Pharmaceutical Research and Manufacturers of America, or PhRMA, said in response to the administration’s announcement.
“The cancer moonshot will not succeed if this administration continues to dismantle the innovation rocket we need to get there,” Ubl added. “The harm will spread beyond cancer and impact people with rare diseases, mental health illnesses and other terrible diseases.”
Many Republicans make the same argument. None voted for the Inflation Reduction Act when it went through Congress, and last year, a caucus representing the majority of House Republicans endorsed repeal of the new negotiation power, calling it a form of “price controls.”
Negotiation is “already having a negative effect both here and abroad on the pipeline for new cures,” Rep. Mariannette Miller-Meeks (R-Iowa) posted on X, previously known as Twitter, following the Biden administration announcement. “There are better ways to lower drug costs.”
Elsewhere on Capitol Hill, GOP leaders from three committees with jurisdiction over health care issued a joint statement warning that negotiation would “worsen patients’ access to care” and “destroy new cures before they come to market.”
But few other Republicans spoke out on Tuesday, which may have something to do with the fact that the Medicare negotiation initiative is highly popular, even among self-identified Republican voters, according to polls. It also has the support of high-profile and widely trusted advocates like AARP.
“Allowing Medicare to negotiate prices for these first 10 drugs will finally bring much needed access and relief to American families, particularly older adults,” Nancy LeaMond, AARP’s executive vice president and chief advocacy and engagement officer, said in a prepared statement. “We cannot overstate how monumental this law is for older Americans’ financial stability and overall health.”
Biden hopes to make the new reforms a big part of his reelection campaign, highlighting both Republican and drug industry opposition to negotiation. “We’re going to see this through,” Biden said at the White House event. “We’re going to keep standing up to Big Pharma and we’re not going to back down.”
Biden also hopes to spread the word about other reforms to reduce drug prices for seniors, like a cap on their out-of-pocket prescription expenses that was also part of the Inflation Reduction Act. That reform will start to phase in next year.
Democrats in Congress seem just as eager to promote the new law’s benefits for Medicare beneficiaries, with relatively moderate members like Rep. Elissa Slotkin (D-Mich.) as enthusiastic as the party’s progressives.
“Medicare negotiation is a hard-fought victory that we’ve been working towards for years,” Slotkin, a longtime advocate for negotiation who is now running for Michigan’s open U.S. Senate seat, said on Tuesday.
According to a recent Pew survey, health care costs are one of the top concerns for U.S. voters, second only to inflation, as the 2024 election cycle kicks off.
Changes For The Drug Industry
It’s difficult to say exactly what impact negotiation will have on the drug industry and its products, although it’s nearly certain that some manufacturers will lose some revenue because of it, according to Michael Levesque, a senior vice president at Moody’s Investors Service.
“There’s certainly going to be a reduction in pricing, on behalf of that [Medicare] population, and that’s going to hit the company’s earnings,” Levesque told HuffPost this week.
But, Levesque added, “this is still a very highly rated industry ... We have companies with long histories of innovation ― they’re going to keep introducing new products, they’re still going to capture breakthroughs and technologies, and produce advances in medicine.”
The negotiation process is supposed to take account of factors like a drug’s effectiveness, as well as the true cost of its research and development. But some experts, like University of Southern California economist Dana Goldman, aren’t sure the federal government will be able to make those judgments in ways that promote better, more affordable treatments.
“If they don’t tie process to value, it’s not clear whether they’ll get the savings that the administration is promising,” said Goldman, who is also co-director of the university’s Schaeffer Center for Health Policy and Economics. “We also worry about the signal it is sending to future innovators: Don’t develop a drug that helps too many.”
Chiquita Brooks-LaSure is administrator for the Centers for Medicare and Medicaid Services, which is leading negotiations with drug manufacturers.
Brooks-LaSure said her agency, which will direct the negotiation process, takes industry arguments seriously and remains committed to supporting innovation, even as it pushes to make medications more affordable.
“We’re meeting regularly with drug manufacturers to understand their perspective, to listen, and we intend to have a real back and forth,” Brooks-LaSure said. “I don’t doubt that, if people truly think that the process is unfair, we will continue to hear about it. But right now, they’re arguing in the abstract, and we need to actually start getting into negotiation to see how this process is going to work.”
“In a sense, the pharmaceutical industry has been given special treatment. ... Drugmakers set their own prices, while the others are paid by Medicare based on payment systems that aim to be fair and keep government spending in check,” Neuman told HuffPost.
And while price negotiation changes that, Neuman went on to say, it does so incrementally. “The law is in some ways a compromise because it limits the number of drugs subject to negotiations, focuses on the highest spending drugs, and lets drug companies set their own prices for many years before negotiated prices take effect,” Neuman said.
Insulin, The Surprise On The List
A number of outside analysts had predicted which drugs would be on the list. And they got a lot right, although the final list included one drug few had expected: a group of insulin products.
Insulin occupies a unique place in health care because it is essential to so many people with diabetes ― and because the three companies that control the market have historically charged so much, even though its basic form has been available for roughly a century.
During the congressional debate that led to the Inflation Reduction Act, many advocates for price negotiation had wanted to make insulin’s inclusion on the negotiation list mandatory. They couldn’t get the votes for that.
Now a form of insulin is on the list anyway, although ― as with the other drugs ― it remains to be seen how much effect negotiations will ultimately have on those products or the rest of the market.
Brooks-LaSure said insulin is on the list because that’s how the formula worked out, not because anybody in the administration made a specific attempt to add it. Advocates like Alex Lawson, executive director of the advocacy group Social Security Works, said they were pleased anyway.
“It really shows that the Biden White House is listening, and understands what Medicare negotiation is about,” Lawson told HuffPost. “They’re using government power in the exact right way, really stepping in to fix market failures and stopping corporate greed.”
Here is the full list of drugs:
Eliquis (prevents blood clots and strokes)
Jardiance (treats Type 2 diabetes)
Xarelto (prevents blood clots and strokes)
Januvia (treats Type 2 diabetes)
Farxiga (treats Type 2 diabetes)
Entresto (treats heart failure)
Enbrel (treats rheumatoid arthritis and other autoimmune conditions)
Imbruvica (treats several types of leukemias and lymphomas)
Stelara (treats plaque psoriasis, psoriatic arthritis, Crohn’s disease and ulcerative colitis)
Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill (insulin products)