5 things consumers need to know about Medicare’s new drug-pricing negotiations, how they’ll affect you

The Biden administration has picked the first 10 high-priced prescription drugs subject to federal price negotiations, taking a swipe at the powerful pharmaceutical industry — a major turning point in a long-fought battle to control ever-rising drug prices for seniors and eventually other Americans.

Under the 2022 Inflation Reduction Act, Congress gave the federal government the power to negotiate prices for certain high-cost drugs under Medicare. The list of drugs selected by the Centers for Medicare & Medicaid Services will grow over time.

The first eligible drugs treat diabetes, blood clots, blood cancers, arthritis and heart disease — and accounted for about $50 billion in spending from June 2022 to this past May.

The United States is an outlier on drug costs, with drugmakers charging Americans many times more than people in other countries “simply because they could,” Biden said Tuesday at the White House. “I think it’s outrageous. That’s why these negotiations matter.

“We’re going to keep standing up to Big Pharma,” Biden said, “and we’re not going to back down.”

Democratic lawmakers cheered the announcement, and the pharmaceutical industry, which has filed lawsuits against the law, condemned it.

The companies have until Oct. 2 to present data on their drugs to CMS, which will make initial price offers in February, setting off negotiations set to end next August.

The prices would go into effect in January 2026.

Here are five things to know about the impact:

1. How important is this?

Medicare has long been in control of the prices for its services, setting physician payments and hospital payments for about 65 million Medicare beneficiaries.

But it previously was prohibited from involvement in pricing prescription drugs, which it started covering in 2006.

Until now, the drug industry has successfully fought off price negotiations with Washington, though in most of the rest of the world governments set prices for medicines. While the first 10 drugs selected for negotiations are used by a minority of patients — nine million — CMS plans by 2029 to have negotiated prices for 50 drugs.

The long-term consequences of the new policy are unknown, said Alice Chen, vice dean for research at University of Southern California’s Sol Price School of Public Policy.

The drug industry says the negotiations are essentially price controls that will stifle drug development, but the Congressional Budget Office estimated only a few drugs wouldn’t be developed each year as a result of the policy.

Biden administration officials say reining in drug prices is key to slowing skyrocketing U.S. health care costs.

2. How will the negotiations affect Medicare patients?

In some cases, patients might save a lot.

But the main thrust of Medicare price negotiation policy is to provide savings to the Medicare program — and taxpayers — by lowering its overall costs.

The drugs selected by CMS range from specialized, hyper-expensive drugs like the cancer pill Imbruvica (used by about 26,000 patients in 2021 at an annual price of $121,000 per patient) to extremely common medications such as Eliquis (a blood thinner for which Medicare paid about $4,000 each for 3.1 million patients).

While the negotiations could help people whose Medicare drug plans require them to make large copayments for drugs, the relief for patients will come from another segment of the Inflation Reduction Act that caps drug spending by Medicare recipients at $2,000 a year starting in 2025.

3. What about people not on Medicare?

One theory is that reducing the prices drug companies can charge Medicare will lead them to increase prices for the privately insured — if they already pricing drugs as high as the private market will bear.

Another theory is that Medicare price negotiations will equip private health plans to drive a harder bargain. David Mitchell, president of the advocacy group Patients for Affordable Drugs, said disclosure of negotiated Medicare prices “will embolden and arm private sector negotiators to seek that lower price for those they cover.”

Stacie B. Dusetzina, a Vanderbilt University health policy professor, said the effect on pricing outside Medicare isn’t clear: “I’d hedge my bet that it doesn’t change.”

Dusetzina described one way it could: Because the government will be selecting drugs for Medicare negotiations based partly on the listed gross prices for the drugs — not the net cost after rebates — the process could give drug companies an incentive to lower list prices and narrow the gap between gross and net. Which she said could benefit people outside Medicare whose out-of-pocket payments are pegged to the list prices.

4. What are drug companies doing to stop this?

At least six drug companies have filed lawsuits to halt the Medicare drug negotiation program, as have the U.S. Chamber of Commerce and the Pharmaceutical Research and Manufacturers of America, known as PhRMA.

Merck & Co., Johnson & Johnson and Bristol Myers Squibb argue that their First Amendment rights are being violated because the program would force them to make statements on negotiated prices they believe are untrue. Lawsuits also say the program unconstitutionally coerces drugmakers into selling their products at inadequate prices.

“It is akin to the government taking your car on terms that you would never voluntarily accept and threatening to also take your house if you do not ‘agree’ that the taking was ‘fair,’ ” Janssen, which is part of Johnson & Johnson, said in its lawsuit.

Nicholas Bagley, a University of Michigan law professor, predicts the lawsuits will fail because Medicare is a voluntary program for drug companies, and those wishing to participate must abide by its rules.

5. What if a drug suddenly gets cheaper by 2026?

It could happen. Under guidelines issued this year, CMS will cancel or adjourn negotiations on any drug on its list if a cheaper copycat version enters the market and finds substantial buyers.

Two biosimilar versions of Stelara, a Johnson & Johnson drug on the list, are planned in early 2025. If they succeed, it presumably would scotch CMS’ plan to demand a lower price for Stelara.

Other drugs on the list have managed to maintain exclusive rights for decades. For example, Enbrel, which the federal Food and Drug Administration first approved in 1998 and cost Medicare $1.5 billion in 2021, won’t face competition until 2029 at the earliest.

KFF Health News is a national newsroom that produces in-depth journalism on health issues.

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