The first round of price negotiations on 10 drugs was announced Thursday amid a lavish White House reception that Democrats celebrated as the result of years of hard work.
Administration officials touted the plan’s $6 billion savings to taxpayers and roughly $1.5 billion reduction in out-of-pocket costs for seniors by 2026.
Here’s what you need to know:
The negotiations went well — almost.
Drug companies claim that this process was not a legitimate negotiation, but all of them agreed to participate, and no company has withdrawn its drugs from the Medicare program.
“The negotiations were comprehensive and intense. It took time for both sides to reach a good agreement,” Health and Human Services Secretary Xavier Becerra said of the talks.
Federal officials met three times with each of the participating drug companies to discuss proposals and counter-proposals, seeking to reach what they called a “mutually acceptable price.”
These meetings resulted in price negotiations for five drugs, with administration officials accepting manufacturers’ counteroffers for four of them.
For the remaining five, Medicare officials have issued final written offers to the drug companies that, if rejected, could force them to remove their drugs from Medicare or face heavy fines.
“I think CMS has a lot of incentives to make this look as much like a negotiation as possible, especially in the context of litigation, and they know that if they came in with a $0 offer, the manufacturers would have walked away from the table and certainly used that information as part of ongoing and future litigation,” said Ross Margulies, a partner at Manatt Health.
Democrats expect big win, could become pillar of election campaign
President Biden and Vice President Harris delivered a pompous victory speech on Thursday following the announcement.
“Big Pharma has been sabotaging Medicare for years, trying to negotiate lower drug prices,” Biden said. “Today, we’ve finally won against Big Pharma.”
The announcement, which comes two weeks before a legal deadline and days before the start of the Democratic National Convention, shows that the Biden administration, including Democratic presidential nominee Harris, is eager to campaign on the savings.
“For years, Big Pharmaceuticals has inflated the prices of life-saving medicines, often charging many times what they cost to manufacture simply to increase their profits. Millions of Americans have suffered as a result,” Harris said. “Throughout my career, I have worked to hold bad actors accountable and lower the cost of prescription drugs.”
Democrats in Congress also praised the savings.
“Exorbitant prices should not stand between Americans and the life-saving medications they need. This announcement will save patients and taxpayers billions of dollars, savings that will grow as Medicare negotiates prices for even more drugs,” Sen. Amy Klobuchar (D-Minn.) said in a statement.
“These drug price cuts, which the Biden-Harris Administration negotiated using the authority given to them by Democrats, will make a huge difference for countless patients when they take effect in 2026,” Sen. Patty Murray (D-Wash.) said in a statement.
It’s unclear how much Medicare actually saves on each drug.
The Biden administration has promoted deep savings, even posting charts on social media showing discounts ranging from 38% to 79%, with savings of 50% or more on all but one drug.
But the figures released by CMS are based on the list price of the drugs, which Medicare often pays less than the list price because of separate rebates and discounts that are not negotiated, but which are kept secret.
Medicare does not publish the net prices it pays for drugs, making it difficult to gauge the exact savings achieved through negotiations.
“There may be places where lower prices were being paid, but in many cases, Medicare was paying list price,” said Bailey Reavis, federal relations manager for Families USA, a consumer health nonprofit.
Medicare beneficiaries typically do not pay the full list price. Some pay copayments or coinsurance based on a percentage of the list price, but for individual patients, the amount they save depends primarily on their insurance plan.
“List price only matters in a very small number of circumstances,” Manatt’s Margulies said. “No one is going to buy at list price, right? I think this is a poor comparison and overstates the so-called success of these negotiations.”
Drugmakers opposed the deal but also suggested it would not cause significant damage.
Soon after the initial prices were announced, pharmaceutical companies and allied groups denounced the “maximum fair price” and called the negotiation process government price fixing.
“The restrictions imposed on the Eliquis MFP do not reflect the significant clinical and economic value of this essential medicine, which is widely recognized to reduce stroke-related events, hospitalizations and the need for long-term rehabilitation,” Bristol-Myers Squibb, maker of the blood-thinning drug Eliquis, said in a statement.
“The administration is trying to use the IRA pricing system to gain political attention, but patients will be disappointed when they learn what it means for them,” said Steve Ubl, president and CEO of Pharmaceutical Research and Manufacturers of America.
But despite the opposition, many executives told shareholders and analysts that the final price proposals would not have a material impact on their companies’ earnings.
“Now that we know the final price, we are increasingly confident in our ability to navigate the impact of IRAs on Eliquis,” Bristol-Myers Squibb CEO Chris Varner said on an earnings call with analysts on July 26.
Wall Street on Thursday essentially ignored any negative impact as stock prices for many companies ended the day little changed.
Industry has come out ahead, Raymond James analyst Chris Meekins wrote in a research note.
“Looking at the negotiated rates, our conclusion is that pharmaceutical companies won relative to what could have happened,” he wrote. “While the industry would have been better off not negotiating in the first place, the impact has been much smaller than politicians have proclaimed, and the industry as a whole seems to be managing the fine well so far.”
This program is expected to be expanded in the future (if it still exists).
Administration officials said this first meeting set the stage for successful future negotiations.
CMS is expected to select the next 15 drugs covered under Part D for negotiation by February 1. In 2025, These prices will come into effect in 2027 and will be expanded to 20 medicines from 2028.
The negotiated price will remain in effect until the drug is no longer covered by the program.
“I think what we’ve created provides a really strong foundation for future drug price negotiations by the administration,” said Stacey Sanders, the Department of Health and Human Services’ chief competition official. “This process has been serious and thoughtful. It will involve real dialogue with prescription drug companies.”
Much depends on the November elections and the next administration. Republicans have criticized the IRA in general and the Medicare negotiating process in particular, and have signaled they will likely try to repeal the IRA’s provisions if they take power next year.
“Addressing the high costs of prescription drugs is a key priority for Congress, but we cannot do so in a way that stifles innovation and creates more uncertainty for seniors on fixed incomes,” said Rep. Brett Guthrie (R-Ky.), chairman of the Energy and Commerce Committee’s Health Subcommittee.
It is unclear what actions former President Donald Trump might take if re-elected. Trump has been critical of the pharmaceutical industry but abandoned a 2016 campaign pledge to allow Medicare to negotiate drug prices.
Separately, pharmaceutical companies have filed numerous lawsuits seeking to halt the process and declare it unconstitutional. While no victories have been won yet, many of the cases are still working their way through the judicial system.
