Biden and Harris welcome Medicare drug price cuts that will save billions

The United States has cut prices by as much as 79 percent on 10 of the best-selling prescription drugs used by Medicare, a government-run health insurance program, in a move it hopes will save $6 billion in the first year. The plan is part of a plan welcomed by President Biden on Thursday to ease anger over high prices ahead of the November election.

Biden's inflation-cutting bill, set to take effect in 2022, was the first law to give Medicare the ability to negotiate prices on some of the most expensive drugs the program covers for 66 million people. The new prices will take effect in 2026.

“We have finally defeated the pharmaceutical industry,” Biden said alongside Vice President Kamala Harris at an event in Largo, Maryland.

The administration hopes the savings will ease Americans' anger over high prices, an issue they often say is their biggest concern ahead of the Nov. 5 presidential election in which Harris is running against Republican former President Donald Trump.

“I've worked my entire career to hold wrongdoers accountable and lower prescription drug costs,” Harris said. “Medicare can use this (collective bargaining) power to go toe-to-toe with the pharmaceutical industry and negotiate lower drug prices.”

The new prices are reductions from the list prices and do not take into account any discounts and rebates the government may already receive for the drugs. However, the estimated savings to the government from the negotiations take these discounts into account.

Harris' tie-breaking vote in the Senate passed the bill allowing drug price negotiations, even though no Republicans sponsored the bill. In a statement, she also pointed to her work as California's attorney general in “holding big pharmaceutical companies accountable for their fraudulent and illegal practices.”

Although it was an official event, Biden turned his speech at the gym into a de facto campaign rally, saying Harris would be a “damn good president” and criticizing Republicans for not supporting Medicare's right to negotiate drug prices.

Republican leadership in the House, including Speaker Mike Johnson, called the power “price fixing” in a statement. “Their prescription drug price fixing has done only two things: It has driven up health care costs and stifled American innovation in medicine.”

The administration said people covered by Medicare – which primarily covers Americans ages 65 and older – would also save $1.5 billion in out-of-pocket costs for prescription drugs in 2026.

Of all the drugs on the list, Merck & Co.'s diabetes drug Januvia faces the largest percentage price cut (79 percent), according to the government, while Novo Nordisk's insulin aspart products will see the second largest price cut at 76 percent.

The other eight drugs on the list face cuts of between 68 and 38 percent.

According to Evan Seigerman, analyst at BMO Capital Markets, the key comparison for investors is the difference between the product's new discount and the final net price.

US Health Secretary Xavier Becerra said in an interview that the government was not prepared to disclose the net prices because they are considered confidential. He declined to comment on whether they would be made public in the future.

Pharmaceutical companies expressed opposition to the new rebates, saying they do not necessarily reduce patients' out-of-pocket costs and could hinder future innovation.

Several people said last month that they did not expect any significant impact on their businesses following the announcement of the government's confidential prices.

Stacie Dusetzina, a professor at Vanderbilt University, said the new discounts and savings, while encouraging, are not so great that they cause concern for the industry.

“This leads me to believe that companies can continue to make profits if they have incentives to innovate,” she said.

Eli Lilly shares fell 0.7 percent, while those of Pfizer, Merck and AbbVie were marginally lower in morning trading. Shares of Amgen and Bristol Myers Squibb rose more than 1 percent and U.S.-listed Novo Nordisk shares gained nearly 2 percent.

Price pain

BMS, the maker of the blood thinner Eliquis, said the 56 percent price cut for its drug would not solve the “biggest patient affordability problem,” namely the out-of-pocket costs set by health insurers and pharmacy benefit managers.

Pharmacy benefit managers are companies that manage prescription drug benefits for health insurers, large employers, and Medicare prescription plans. They negotiate fees and volume-based discounts, called rebates, with drug manufacturers and pharmacies on behalf of payers.

Johnson & Johnson, whose Crohn's disease drug Stelara and its blood thinner Xarelto are facing list price cuts of 66 and 62 percent respectively, said patients would face higher costs as a result of the price cuts.

Novo and AstraZeneca, whose list price for diabetes drug Farxiga was cut by 68 percent, said they were unwilling to leave the Medicare program rather than accept new prices.

A spokesman for AbbVie, whose cancer drug Imbruvica has to accept the smallest percentage cut at 38 percent, said the negotiated price was within the expected range.

More than half of voters in 2020 were over 50, and health care accounts for about 8% of Americans' spending, according to data from the Pew Research Center and the Labor Department.

While inflation has fallen, higher prices since the COVID pandemic have angered consumers. Consumer prices rose 2.9% in the 12 months through July, and the category that includes prescription drugs rose by about the same percentage.

The Medicare agency said it had accepted revised counteroffers from drug manufacturers for four of the 10 drugs selected, while the pharmaceutical companies had accepted final offers for five drugs.

Last year, the government released its list of the ten most expensive Medicare drugs that would be subject to negotiations.

The pharmaceutical industry has been trying hard to block the Medicare negotiations, with several companies suing the government and warning that they may have to limit some drug development programs as a result.

The next round of Medicare drug price negotiations is expected to include 15 more drugs and begin in February.

Government officials are expected to release further details next year on how the price cuts through 2026 were achieved.