Prices revealed for first 10 drugs subject to Medicare drug price negotiations but speculation continues
After much speculation and conjecture, the US government has unveiled the pricing for the first batch of drugs selected for Medicare drug price negotiations mandated under the Inflation Reduction Act. But with limited details on how these prices were determined, many stakeholders are calling for greater transparency in the decision-making process, seeking clarity on the evidence used and how these changes will ultimately affect patient access and costs.
“Medicare drug price negotiation and the lower prices announced today demonstrate the commitment of CMS and the Biden–Harris Administration to lower health care and prescription drug costs for Americans. We made a promise to the American people, and today, we are thrilled to share that we have fulfilled that promise.” CMS Administrator Chiquita Brooks-LaSure.
On the eve of the second anniversary of the enactment of the Inflation Reduction Act and amidst a shifting US election landscape, the US Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), has today (August 15, 2024) announced the prices for the 10 drugs selected for Medicare drug price negotiation. The reported maximum fair prices for these drugs covered under Medicare Part D equate to 38–79% discounts off the current list prices and come following months of negotiation with the participating pharmaceutical companies.
These drugs include top-selling products for arthritis, cancer, diabetes, and heart failure from some of the biggest pharmaceutical companies, including Bristol Myers Squibb, Eli Lilly, Merck and Novartis. This historic news marks the first time that Medicare has been empowered to negotiate prices for the costliest drugs directly with pharmaceutical companies and paves the way for potential “financial relief to millions of older Americans”.
Medicare provides health care coverage for more than 67 million older and disabled US citizens. CMS reports that almost 9 million people take at least one of the 10 selected drugs. Figures accompanying the release indicate that, if the new prices had been in effect in 2023, Medicare would have saved an estimated $6 billion in spending. Medicare enrollees themselves could also save around $1.5 billion in out-of-pocket costs on their medications.
The negotiated prices will come into effect from January 1, 2026. In February 2025, the US government plans to announce up to 15 more drugs for the next round of negotiations, with prices effective in 2027. Pharmaceutical companies must decide by the end of February 2025 whether to participate. After that, CMS will negotiate prices for another 15 drugs for 2028, increasing to 20 medications annually starting in 2029.
The end to speculation?
In their announcement, CMS has detailed how agreement on the final prices were reached, after a process where they “engaged in genuine, thoughtful negotiations with each participating drug company”. This included a series of meetings and discussions with each company where offers and counteroffers were debated. Interestingly, CMS explained they reached agreements on prices for five drugs, with CMS accepting revised counteroffers from the companies. For the remaining five drugs, CMS issued final offers which were all accepted by the drug companies by the statutory deadline.
The new prices come following a lengthy period of negotiation between CMS and pharmaceutical companies after the list of drugs was announced last year. Whilst details of the pricing have been unveiled, how these prices were reached is still unclear. Over the past few months, there has been much speculation on exactly how CMS will reach their maximum fair prices.
In new article in Value in Health, published the same day as CMS’s announcement, Sean Sullivan, Inmaculada Hernandez, and co-authors attempted to predict the negotiated drug prices using price benchmarks and comparative clinical effectiveness evidence. They accurately predicted prices for 5 of the 10 drugs, were close on 3 others, but missed significantly on one, highlighting the need for greater transparency from CMS in its pricing process to enable companies to better anticipate future drug pricing. The authors caution: “Our analyses should be interpreted as an attempt to inform CMS initial price offers given context-dependent scenarios, as opposed to a prescriptive report of the process that CMS should follow in the derivation of the initial price offers. This is a critical nuance in the interpretation of our findings, which identified major sources of uncertainty in the interpretation of the guidance, as well as important difficulties encountered in the attempt to reproduce the MFPs.”
Speaking exclusively to The Evidence Base, Kimberley Westrich of the National Pharmaceutical Council underscored the importance of clarity and consistency in the process.
“In addition to the critical unknown impact on patients at the pharmacy counter, there are unknown impacts for life sciences and managed care companies that need to make big decisions based on CMS’s process. Today’s announcement doesn’t just affect the companies with selected drugs. Those involved in generating or evaluating evidence have called for a more transparent and predictable process. It remains to be seen how much CMS will listen.”
CMS is expected to publish its explanations for the negotiated drug prices by March 2025 but this may be too late for the next raft of negotiations, as John O’Brien (President and CEO at National Pharmaceutical Council) warns:
“We don’t yet know, in spite of what they said, what the impact for patients at the pharmacy counter will be. They didn’t offer specifics about what evidence they used, if they listened to patients or clinicians, or how they’ll protect patient access or out-of-pocket spending. And when they do it may be too late to inform the next round.”
Stephen Ubl (President and CEO, Pharmaceutical Research and Manufacturers of America [PhRMA]), who has previously voiced concerns on the IRA, echoed the uncertain impact on patients:
“The administration is using the IRA’s price-setting scheme to drive political headlines, but patients will be disappointed when they find out what it means for them. There are no assurances patients will see lower out-of-pocket costs because the law did nothing to rein in abuses by insurance companies and PBMs who ultimately decide what medicines are covered and what patients pay at the pharmacy.”
Real-world savings?
Whilst the negotiated prices are significantly lower than the list prices for the drugs, this does not necessarily reflect the real-world prices that Medicare pays, raising questions about the impact of the negotiations on Medicare’s actual spending and the prices paid by patients. Most of the 10 medications involved already undergo significant rebates after private negotiations with Medicare Part D plans, making it unclear how the new negotiated prices stack up against the net prices, which include these existing rebates and discounts. Indeed, some have even predicted this may lead to increased drug spending by Medicare.
Long-term impact
As HHS Secretary Xavier Becerra notes, “empowering Medicare to negotiate prices not only strengthens the program for generations to come, but also puts a check on skyrocketing drug prices”. While the benefits to Medicare are clear, the future for the pharmaceutical industry remains uncertain. Many have debated the “unintended consequences” of the drug price negotiation process on the wider biopharma ecosystem, raising concerns that reduced revenues could stifle innovation, limit the development of new therapies, and alter the competitive landscape of the industry. While proponents argue that the savings will benefit millions of patients, critics warn that the long-term impact on research and development could pose challenges to future medical advancements. Noting their concerns, several pharmaceutical companies have filed lawsuits challenging the drug pricing provisions in the IRA to little effect.
On LinkedIn, how these prices were reached is being hotly debated, with experts reasoning these negotiated prices will not be as impactful on the pharmaceutical industry as anticipated. However, these opinions appear to be in the minority.
William Sarraille, a rare disease patient who writes and speaks on patient access issues, has cautioned the impact on innovation is already being realized.
“I fear that the critics are likely correct that the IRA implementation is going to be rocky. Innovation, from my perspective, will inevitably take a hit. The price controls, because those prices will be public, will have a huge impact beyond Medicare. The impact on small molecule programs appears to already be real.”
Brian Reid (Principal, Reid Strategic and Editor of the Cost Curve Weekend newsletter) shared a more somber view with The Evidence Base, suggesting that today’s announcement could signal the start of a worsening trajectory for the pharmaceutical industry:
“There will be some very real effects. But they’re effects that Wall Street and the companies are well prepared for. Today didn’t have any surprises, but that doesn’t mean that losing billions in revenue in 2026 won’t leave a mark….the impact on pharma only gets worse from here. These first 10 medicines were somewhat unusual, already subject to mammoth discounts. I mean, how much more juice can be squeezed from insulin prices? In contrast, price controls in the years to come may be far more painful.”
Without a crystal ball, it’s difficult to predict the full scope of these changes, but the industry is clearly bracing for a new era where the balance between cost control and innovation will be tested like never before.
