Medicare releases prices for first 10 drugs subject to negotiations

The Biden administration on Thursday released prices for the first 10 prescription drugs that were subject to landmark negotiations between drugmakers and Medicare, a milestone in a controversial process that aims to make costly medications more affordable for older Americans. 

The government estimates that the new negotiated prices for the medications will lead to around $6 billion in net savings for the Medicare program in 2026 alone, when they officially go into effect. That is based on the estimated savings the prices would have produced if they were in effect in 2023, senior administration officials told reporters on Wednesday.

The Biden administration also expects the new prices to save Medicare enrollees $1.5 billion in out-of-pocket costs in 2026 alone.

“For so many people, being able to afford these drugs will mean the difference between debilitating illness and living full lives,” Chiquita Brooks-LaSure, the administrator for the Centers for Medicare and Medicaid Services, told reporters. “These negotiated prices. They’re not just about costs. They are about helping to make sure that your father, your grandfather or you can live longer, healthier.”

It comes one day before the second anniversary of President Joe Biden‘s signature Inflation Reduction Act, which gave Medicare the power to directly hash out drug prices with manufacturers for the first time in the federal program’s nearly 60-year history. 

The administration unveiled the first set of medications selected for the price talks in August 2023, kicking off a nearly year-long negotiation period that ended at the beginning of the month.

The final prices give drugmakers, which fiercely oppose the policy, a glimpse of how much revenue they could expect to lose over the next few years. It also sets a precedent for the additional rounds of Medicare drug price negotiations, which will kick off in 2025 and beyond. 

In a statement Thursday, President Joe Biden called the new negotiated prices a “historic milestone” made possible because of the Inflation Reduction Act. He specifically touted Vice President Kamala Harris’ tie-breaking vote for the law in the Senate in 2022.

Harris, the Democratic presidential nominee, said in a statement that she was proud to cast that deciding vote, adding there is more work to be done to lower health-care costs for Americans.

“Today’s announcement will be lifechanging for so many of our loved ones across the nation, and we are not stopping here,” Harris said in a statement Thursday, noting that additional prescription drugs will be selected for future rounds of negotiations.

The Biden administration will release the so-called maximum fair price of each drug, the highest price that a Medicare Part D plan sponsor or beneficiary can pay for the treatment. Medicare Part D plans, which are administered by private insurers, cover prescription medications that older Americans fill at retail pharmacies.

The lengthy negotiation process involved months of back-and-forth price offers between companies and Medicare, which determined its initial offer for each medication using sales volume data, federal financial support for the drug’s development and data on pending or approved patent applications and exclusivities, among other information.

It is difficult to compare the new negotiated price of a drug with its current list price, which is what a wholesaler, distributor or other direct purchaser paid a manufacturer for a medication before any discounts.

That’s because most of the 10 medications are already subject to significant rebates after private negotiations with Medicare Part D plans. But the heavily rebated net price that Part D plans pay for a given drug is unknown since those talks are confidential, according to Leigh Purvis, a prescription drug policy principal with AARP Public Policy Institute.

AARP, the influential lobby group that represents people older than 50, has advocated for Medicare’s new negotiation powers.

“So that’s I think what people are going to be trying to get to – are these negotiated prices lower than the net prices that Medicare Part D were already paying?” Purvis told CNBC. “And so that’s the comparison that people are looking for. Now, recognizing that rebates are confidential, it’s going to be a tough ask.”

A senior administration official confirmed that a direct comparison between the negotiated prices and net prices paid by Medicare is “commercially confidential information.”

“Each Medicare Part D plan has their own individual rebate agreements, and Medicare is prohibited from sharing any information that we have there,” the official told reporters.

The negotiations are the centerpiece of the Biden administration’s efforts to rein in the rising cost of medications in the U.S. Some congressional Democrats and consumer advocates have long pushed for the change, as many seniors around the country struggle to afford care.

The price talks are expected to save money for people enrolled in Medicare, who take an average of four to five prescription drugs a month. 

Almost 10% of Medicare enrollees ages 65 and older, and 20% of those under 65, report challenges in affording drugs, a senior administration official told reporters last year. 

But the pharmaceutical industry views the process as a threat to its revenue growth, profits and drug innovation. Several drugmakers and trade groups filed lawsuits last year seeking to derail the negotiations and declare them unconstitutional. 

Suits brought by Merck and Novartis against the price talks are awaiting decisions from district courts. Each case brings claims that overlap with suits from Novo Nordisk, AstraZeneca, Boehringer Ingelheim, Bristol Myers Squibb and J&J that have been rejected in recent months.

The 10 drugs are among the top 50 with the highest spending for Medicare Part D.

The 10 medicines accounted for $50.5 billion, or about 20%, of total Part D prescription drug costs from June 1, 2022, to May 31, 2023, according to CMS. In 2022, 9 million seniors spent $3.4 billion out of pocket on the 10 drugs, and some paid more than $6,000 per year for just one of the medications on the list, according to the Biden administration.

The medications have been on the market for at least seven years without generic competitors, or 11 years in the case of biological products such as vaccines. 

Medicare covers roughly 66 million people in the U.S., and 50.5 million patients are enrolled in Part D plans, according to 2023 data from health policy research organization KFF.

By February 2025, the Biden administration will also unveil up to 15 more drugs that will be subject to the next round of price talks, with agreed-upon prices going into effect in 2027. Drugmakers will have until the end of that month to decide whether to participate in the program. 

After that second round, CMS can negotiate prices for another 15 drugs that will go into effect in 2028. The number rises to 20 negotiated medications a year starting in 2029.

“Sometimes I think people get caught up in the fact that their drug isn’t on the list, but it will be on the list at some point in the future if they’re taking a drug that’s resulting in high costs,” Purvis said. 

CMS will only select Medicare Part D drugs for the medicines covered by the first two years of negotiations. It will add more specialized drugs covered by Medicare Part B, which are typically administered by doctors, in 2028. 

Notably, Harris would likely try to expand the scope of negotiations if elected president, experts told CNBC. 

Purvis emphasized that Medicare is “only going to get better at this process as it moves forward.”

“We do expect billions of dollars in savings to taxpayers to start flowing as this negotiation program gets off the ground and Medicare gets better at the drug negotiation process,” she told CNBC.