Medicare’s early drug price talks, briefly explained

More than a decade after Democrats first tabled the proposal, Medicare is finally ready to begin negotiating prices for some prescription drugs.

This week, the federal government announced the 10 drugs that will be included in the first round of negotiations. The new prices will take effect in 2026.

The 10 drugs on the list make up a diverse set. Some are taken from millions of people with a price tag of a few thousand dollars a year. Others cost more than six figures a year and are taken from far fewer patients. Taken together, the list represents the many ways high drug prices put pressure on both patients and insurers and increase the risk that people won’t have access to the drugs they need.

Even if you don’t take one of these drugs, negotiations should help you if you’re on Medicare. Congress used estimated savings of $99 billion over 10 years to limit annual out-of-pocket costs to $2,000 for all Medicare beneficiaries.

Everyone will benefit, Stacie Dusetzina, a professor of health policy at Vanderbilt University who sits on the program’s congressional advisory committee, told me. You have the security of a $2,000 limit.

The negotiating program represents a major milestone for the US healthcare system: The federal government’s largest healthcare program (in terms of spending) is using its enormous financial leverage to try to stem high prices set by drugmakers for their products. The United States pays more for prescription drugs than any other country in the world and yet, compared to other nations’ health systems, the American government has had limited power in trying to lower prices. This new program, created by the Inflation Reduction Act, gives Medicare a powerful new tool.

Now that the top 10 drugs have been selected, the process can begin. Here’s how it will play out:

1. Drugmakers have one month to sign an agreement to participate in negotiations and submit data for Medicare to consider them for the negotiated price
2. By February 1, 2024, Medicare will offer its upfront pricing on select drugs; the producers then have one month to accept or submit a counter offer
3. There will be an opportunity to negotiate during the spring and summer of next year. Then, in September 2024, Medicare will announce final pricing. The program will start paying those prices in 2026.

The process will begin anew when Medicare announces 15 more drugs that it will be open to negotiation in February 2025, with pricing going into effect in 2027. In each subsequent year, additional drugs will be added to the negotiable program.

That is, if the courts will allow negotiations to proceed. The pharmaceutical industry has already filed a series of lawsuits, each with its own legal rationale, to stop the program before it starts. Many legal experts believe that this litigation will fail, how can the government run a sustainable program if it has no discretion over the prices to pay for drugs? but the rulings in these cases will ultimately determine whether Medicare drug negotiations can test their potential to save money for U.S. patients and their government.

Meanwhile, the drugs Medicare plans to negotiate on can be divided into two groups.

1) The rather expensive drugs for chronic diseases taken by hundreds of thousands or even millions of people

Seven of the 10 drugs announced for trading fall into this category:

• Eliquis, which treats and prevents blood clots (list price $561 for a one-month supply)
• Jardiance, which treats diabetes and heart failure (list price $570)
• Xarelto, which treats and prevents blood clots and reduces related risks for people with heart disease (list price $542)
• Januvia, which cures diabetes (list price $586)
• Farxiga, which treats diabetes, heart disease and chronic kidney disease (list price $549)
• Entresto, which treats heart failure (list price $545)
• A class of insulin injectors and related refill products: Fiasp, Fiasp FlexTouch, Fiasp PenFill, NovoLog, NovoLog FlexPen and NovoLog PenFill

What these drugs have in common is that many Americans take them—perhaps because diabetes and heart disease are among the most common chronic health conditions in the United States—and must take them on a regular basis. More than 580,000 people on Medicare took Entresto from June 2022 to May 2023; more than 1 million have been prescribed Xarelto and Jardiance. Eliquis was the most commonly used drug on the list, being taken by more than 3.7 million people. At that time, the cost of Medicare was approximately $16.5 billion.

Even though most people who get Medicare do not pay list price, prescription drug coverage may still affect the prices you pay. Patients may have a deductible to meet before their benefits take effect or they may be responsible for paying coinsurance, which is calculated based on the list price.

These drugs also help people manage chronic health conditions to avoid more costly health problems in the future. The consequences can be severe if people are forced to give up medications due to cost. Insulin in particular has been subjected to rationing, which in the long term can reduce its effectiveness and, in some individual cases, has led to serious emergencies and even death of patients. (The IRA also included a provision to cap monthly insulin costs to $35 for Medicare patients.) Research has found that even an extra $10 cost can lead to people taking fewer medications than they need.

Medicare negotiations won’t solve all of these problems. But they will save patients and the program, and under the IRA, these government savings are used to limit drug costs for seniors participating in the program.

2) Super expensive drugs for people with serious and life-threatening illnesses

The second group of drugs under Medicare talks are being taken by a much smaller group of people, but for people who need them, their ability to afford them could determine in the very near future whether they live or die:

• Enbrel, which treats rheumatoid arthritis, psoriasis, and psoriatic arthritis (list price $1,762 for a one-week dosage)
• Imbruvica, which treats various blood cancers (list price $13,546 for about one month of tablets)
• Stelara, which treats psoriasis, psoriatic arthritis, Crohn’s disease, and inflammatory bowel disease (list price $25,497 for an 8-week supply)

The number of affected Medicare patients ranges from about 20,000 for Stelara and Imbruvica to nearly 50,000 for Enbrel. However, these drugs cost the Medicare program more than $2.6 billion each from June 2022 to May 2023.

These patients in particular will benefit from the negotiated pricing and the new cap established by Congress, Dusetzina said. Under the old Medicare subsidy model, they would have had to spend up to $10,000 a year on their drugs. Now their costs will not exceed $2,000 a year.

This is the tragedy of America’s drug price crisis. The pharmaceutical industry has developed and produced amazing treatments that can stop cancer or help people live with otherwise debilitating illnesses.

But too often these treatments come at a price that patients can’t afford or require health insurers to raise premiums so that everyone can cover the costs, or both. Our notoriously ungenerous health insurance made the affordability crisis worse, but so did the carte blanche granted to pharmaceutical companies under the current political regime: they can set whatever list price they like while their products are protected by a patent . Dusetzina told me she wouldn’t be surprised if the next rounds of drugs target more expensive drugs for severe acute illnesses like cancer, given that the initial list is more skewed toward (relatively) low-cost drugs for chronic illnesses. .

Historically, drug makers have argued that health insurance companies would negotiate these prices down, so no one would have to pay them. They would even say that, for Medicare, the different private Part D plans were already negotiating prices on behalf of their patients.

It was true. But it prevented Medicare from using all of its leverage to try to cut prices for everyone because each Part D plan represented fewer people than Medicare as a whole. (There are more than 800 Part D plans.) Now, things are finally about to change.