CMS touts first negotiated drug prices, but expects greater impact in future rounds

Medicare has announced the prices for the first 10 drugs selected for its negotiated program. The new prices are up to 79 percent below list prices and will save taxpayers an estimated $6 billion, the White House said Thursday.

The savings won't happen immediately. The new prices for these products won't take effect until Jan. 1, 2026, for those covered by Medicare Part D prescription drugs. But these 10 widely used products in therapeutic areas like diabetes and autoimmune diseases are the first of many drugs to make their way to the Medicare bargaining table in the coming years. While patient advocates say these negotiations provide financial relief for Medicare beneficiaries, industry groups and drugmakers continue to criticize the federal law that set the whole process in motion.

Medicare drug price negotiations were one of the provisions of the sweeping Inflation Reduction Act that President Biden signed nearly two years ago. The 10 drugs selected for negotiations were announced last August. For companies participating in the negotiating program, talks began last October. The deadline to announce the new prices was Sept. 1. Thursday's announcement comes just before the anniversary of Biden signing the IRA. It also gives Vice President Kamala Harris another talking point for the Democratic National Convention, which begins Monday. But AARP Executive Vice President and Chief Advocacy and Engagement Officer Nancy LeaMond offered a bipartisan view of the negotiated drug prices.

“AARP members from across the political spectrum have overwhelmingly identified lowering prescription drug costs as a top priority – and this first round of Medicare price negotiations will provide financial relief for millions of older Americans,” she said in a prepared statement. “As the voice of the 100 million Americans ages 50+, we will continue to work to ensure this bill is fully implemented and benefits older Americans for decades to come.”

The largest dollar savings were achieved on Johnson & Johnson's immunology drug Stelara, which saw its list price reduced by $9,141. On a percentage basis, negotiated price reductions ranged from 38 to 79 percent, with Merck's diabetes drug Januvia seeing the largest percentage change.

According to CMS, Medicare would have saved an estimated $6 billion if those negotiated prices had taken effect in 2023. That savings is based on list prices. The savings over net prices, which include rebates, discounts and other price reductions, total a price reduction of about 22%. That's “not as bad as expected earlier this year,” wrote David Risinger, an analyst at Leerink Partners, in a research note published Thursday. He added that industry fears of a larger impact were allayed by comments made by the company on conference calls to discuss second-quarter 2024 financial results, in which executives suggested the price cuts were manageable.

Jeff Jonas, portfolio manager at Gabelli Funds, pointed out that most of the first 10 drugs are older products whose patents are about to expire, such as J&J's Stelara and Bristol Myers Squibb/Pfizer's heart drug Eliquis. Because the new prices won't take effect until 2026, the impact – for companies and Medicare beneficiaries – won't be felt immediately. The bigger impact is yet to come, Jonas said.

Additional drugs will be selected each year under the Drug Price Negotiation Program. Up to 15 drugs under Medicare Part D will be selected for negotiation in 2025; up to 15 additional drugs in Parts B and D will be selected in 2026. Up to 20 drugs will be selected for negotiation each year thereafter.

“There are 15 more drugs being selected for 2027, including Novo Nordisk's Ozempic for diabetes/obesity,” Jonas said. “There has also been speculation that the government has been lenient with pharmaceutical companies this year, as it is both an election year and the first time they have done so. 2028 could include some big cancer drugs like Merck's Keytruda. So for now, it's manageable, but there will be headwinds and something to keep an eye on going forward.”

The pharmaceutical industry has been trying to change that future even as the first 10 selected drugs went through the negotiation process. Industry lawsuits denouncing the IRA's drug pricing provisions as unconstitutional have so far failed. But the pharmaceutical industry trade group PhRMA maintains its position that the drug price negotiation program is not true negotiations. PhRMA says once a drugmaker's product is selected for the program, the company must agree to the government's price — which amounts to price fixing. Some financial analysts refer to these negotiations as price controls.

Leerink's Risinger expressed concern about the longer-term impact of the IRA. Over time, drugs will feel the impact of drug price negotiations years before their patents expire. As a result, innovation will likely be hampered, particularly for oral small molecule drugs. That's because CMS can select such drugs for negotiation nine years after approval, compared to 13 years for biologics, putting small molecule drugs at a disadvantage.

Upcoming negotiations for Medicare Part B drugs could bring much deeper price cuts. Part D drugs are drugs that patients self-administer, while Part B drugs are typically administered by doctors. While Part D drugs are heavily discounted, Part B drugs are not, Risinger explained. He sees some encouraging signs in that the J&J and AbbVie drug Imbruvica, the only cancer drug in the top 10, also received the smallest discount by percentage change at just 38%. That could be a sign that cancer drugs covered by Part B could also see smaller discounts.

Photo illustration: Scott Olson, Getty Images