Activists protest against the cost of prescription drugs outside the U.S. Department of Health and Human Services building in Washington, DC on October 6, 2022.
Anna Moneymaker |
On Thursday, the Biden administration will announce prices for the first 10 prescription drugs that were the subject of landmark negotiations between drug companies and Medicare, a milestone in a contentious process aimed at making expensive drugs more affordable for older Americans.
The government estimates that the renegotiated drug prices will result in net savings of about $6 billion for the Medicare program in 2026 alone, when they officially take effect. That's based on the estimated savings the prices would have brought when they come into force in 2023, senior government officials told reporters on Wednesday.
The Biden administration also expects the new prices to save Medicare beneficiaries $1.5 billion in out-of-pocket costs in 2026 alone.
“For many people, being able to afford these drugs means the difference between a serious illness and a full life,” Chiquita Brooks-LaSure, director of the Centers for Medicare and Medicaid Services, told reporters. “These negotiated prices are not just about cost. They are about helping your father, your grandfather or you live longer and healthier.”
This came one day before the second anniversary of the Inflation Reduction Act signed by President Joe Biden, which gave Medicare the authority to negotiate drug prices directly with manufacturers for the first time in the federal program's nearly 60-year history.
The government presented the first batch of drugs selected for price negotiations in August 2023, starting a nearly year-long negotiation phase that ended earlier this month.
The final prices will give pharmaceutical companies, which vehemently oppose the rule, a glimpse into the amount of revenue they can expect to lose in the coming years and set a precedent for further rounds of negotiations on Medicare drug prices, which will begin in 2025.
In a statement on Thursday, President Joe Biden called the renegotiated prices a “historic milestone” made possible by the Inflation Control Act. He particularly praised Vice President Kamala Harris's deciding vote for the bill in the Senate in 2022.
Harris, the Democratic presidential candidate, said in a statement that she was proud to have cast that decisive vote, adding that more needs to be done to reduce health care costs for Americans.
“Today's announcement will change the lives of so many of our loved ones across the country, and we are not satisfied with this,” Harris said in a statement Thursday, noting that other prescription drugs will be selected for future rounds of negotiations.
Here are the 10 drugs that were the subject of initial discussions:
- Eliquis, manufactured by Bristol-Myers Squibbis used to prevent the formation of blood clots and thus reduce the risk of stroke.
- Jardiance from Boehringer Ingelheim and Eli Lillyis used to lower blood sugar levels in people with type 2 diabetes.
- Xarelto, manufactured by Johnson & Johnsonis used to prevent the formation of blood clots and thus reduce the risk of stroke.
- Januvia, manufactured by Merckis used to lower blood sugar levels in people with type 2 diabetes.
- Farxiga, manufactured by AstraZenecais used to treat type 2 diabetes, heart failure and chronic kidney disease.
- Entresto, manufactured by Novartisis used to treat certain forms of heart failure.
- Enbrel, manufactured by Amgenis used to treat autoimmune diseases such as rheumatoid arthritis.
- Imbruvica, manufactured by AbbVie and J&J is used to treat various types of blood cancer.
- Stelara from Janssen is used to treat autoimmune diseases such as Crohn's disease.
- Fiasp and NovoLog, insulins from Novo Nordisk.
The Biden administration will announce what's known as the maximum fair price for each drug, which is the highest price a sponsor or beneficiary of a Medicare Part D plan can pay for the treatment. Medicare Part D plans, administered by private insurers, cover prescription drugs that older Americans redeem at pharmacies.
The lengthy negotiation process involved months of price quotes between the companies and Medicare. The government health system determined its initial offer for each drug based on data on sales volume, government financial support for the drug's development, and data on pending or approved patent applications and exclusivity claims, among other factors.
It is difficult to compare the renegotiated price of a drug with its current list price, which is the price a wholesaler, distributor or other direct buyer paid a manufacturer for a drug before any discounts.
That's because most of the 10 drugs already come with significant discounts after private negotiations with Medicare Part D plans. But the deeply discounted net price Part D plans pay for a particular drug is unknown because those discussions are confidential, says Leigh Purvis, a drug policy director at the AARP Public Policy Institute.
AARP, the influential lobby group that represents people over 50, has pushed for Medicare's new negotiating powers.
“I think that's what people are trying to figure out — are these negotiated prices lower than the net prices that Medicare Part D was already paying?” Purvis told CNBC. “And that's the comparison that people are looking for. Given that rebates are confidential, that's going to be a tough question.”
A senior administration official confirmed that a direct comparison between negotiated prices and the net prices paid by Medicare was “commercially confidential information.”
“Each Medicare Part D plan has its own individual rebate arrangements, and Medicare is prohibited from sharing the information we have about them,” the official told reporters.
The negotiations are the centerpiece of the Biden administration's efforts to curb rising drug costs in the U.S. Some Democrats in Congress and consumer advocates have long pushed for the change, as many seniors across the country struggle to afford care.
The price negotiations are intended to save money for Medicare beneficiaries who take an average of four to five prescription drugs per month.
Nearly 10 percent of Medicare beneficiaries age 65 and older and 20 percent of those under 65 report having difficulty affording medications, a senior administration official told reporters last year.
President Joe Biden signs the Inflation Reduction Act of 2022 at the White House on August 16, 2022.
Almond and | Afp | Getty Images
But the pharmaceutical industry sees the process as a threat to its sales growth, profits and drug innovation. Several pharmaceutical companies and industry associations filed lawsuits last year to derail the negotiations and declare them unconstitutional.
The lawsuits brought by Merck and Novartis challenging the pricing negotiations are still awaiting a decision in district courts. In any case, the claims overlap with lawsuits brought by Novo Nordisk, AstraZeneca, Boehringer Ingelheim, Bristol Myers Squibb and J&J that have been dismissed in recent months.
The 10 drugs are among the 50 highest spenders for Medicare Part D.
According to CMS, the 10 drugs accounted for $50.5 billion, or about 20%, of total Part D prescription drug costs from June 1, 2022, to May 31, 2023. In 2022, 9 million seniors spent $3.4 billion out of pocket on the 10 drugs, and some paid more than $6,000 a year for just one of the drugs on the list, according to the Biden administration.
The drugs have been on the market for at least seven years without generic competition, and in the case of biological products such as vaccines, even for eleven years.
Medicare covers about 66 million people in the U.S., and 50.5 million patients are enrolled in Part D plans, according to 2023 data from the health policy research organization KFF.
What happens next?
CMS must publish a statement of negotiated prices for each drug by March of next year. These new prices will take effect on January 1, 2026.
By February 2025, the Biden administration will also unveil up to 15 additional drugs that will be the subject of the next round of price negotiations. The agreed prices will take effect in 2027. Drug manufacturers have until the end of this month to decide whether to participate in the program.
After this second round, CMS can negotiate prices for an additional 15 drugs that will take effect in 2028. Starting in 2029, that number increases to 20 negotiated drugs per year.
“Sometimes I think people get upset that their drug isn't on the list, but it will be on the list at some point in the future if they take a drug that has a high cost,” Purvis said.
CMS will select only those drugs for Medicare Part D that are covered during the first two years of negotiations. In 2028, it will add more specialty drugs covered by Medicare Part B that are typically administered by physicians.
In particular, if Harris is elected president, she will likely try to expand the negotiating room, experts told CNBC.
Purvis emphasized that Medicare “will continue to improve this process over time.”
“We expect billions of dollars in savings to taxpayers as this negotiation program gets underway and Medicare improves its drug negotiations,” she told CNBC.
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