Medicare negotiations for lower drug prices near the finish line

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One of the first things President Biden touted in his announcement that he was bowing out of the 2024 presidential contest was his work on prescription drug prices. And the biggest achievement in that area is the law that allows Medicare to negotiate drug prices.

Vice President Kamala Harris can take credit, too, as the person who cast the tie-breaking vote in the Senate to pass the Inflation Reduction Act.

Negotiating Medicare drug prices is something former President Donald Trump also talked about doing before walking the campaign promise back a few years ago.

Here’s what to know about the landmark update to the health care program for seniors.

These Medicare negotiations are a first

When Medicare Part D, which covers prescription drugs for seniors, was created almost two decades ago, Congress banned it from negotiating prices. That meant that even though the program covers a huge chunk of the American population — more than 50 million seniors — it couldn’t use that bargaining power to get lower prices.

The Inflation Reduction Act changed that, allowing negotiations between Medicare and pharmaceutical companies for 10 drugs now, then up to 15 starting in 2025 and up to 20 by the end of the decade.

“Negotiating as one entity hopefully gives us a better deal,” Stacie Dusetzina, a health policy professor at Vanderbilt University, told NPR in June. “In addition, there are some specific rules set up about the negotiations that give us a chance to negotiate in places where we know that the prices aren't as low as they could be.”

Medicare Part D spends well over $200 billion on drugs every year. But most of that spending goes for a tiny fraction of the thousands of medicines Medicare covers, according to a report by the Kaiser Family Foundation. So the Inflation Reduction Act prioritized negotiations for medicines that were among those costing the program the most. The gross cost of the first bunch of drug selected for Medicare negotiation was more than $50 billion between June 1, 2022 and May 31, 2023.

The negotiations are well underway

The drug companies and the government have been going back and forth negotiating since February.

The official end of negotiation is Aug. 1, and the settled prices should be announced Sept. 1. Although it is right in the middle of election season, that’s the way the negotiation calendar was set up more than a year ago.

“This is a historic step for the Medicare program, and we have met all of our timelines,” Dr. Meena Seshamani, who directs the Medicare program, told NPR in June.

Even though negotiations are ending soon, the prices won’t go into effect until January 2026.

The drugs are blockbusters

The government selected which drugs to negotiate based on a complex set of conditions laid out in the Inflation Reduction Act. For starters, the drugs had to be brand-name drugs without generic alternatives (or without biosimilar versions in the case of so-called biologics). The drugs also had to have been on the market for at least 7 years (or 11 years in the case of biologics) when selected by Medicare for negotiation.

The negotiated drugs include Eliquis and Xarelto, which are both blood thinners used by millions of Medicare enrollees. This list also includes Jardiance and Farxiga for heart failure and diabetes, and Imbruvica for blood cancers.

On average enrollees paid between $121 and $5,247 out of pocket in 2022 for these drugs, according to the Department of Health and Human Services.

There has been a ton of secrecy to protect the integrity of the negotiations.

The government has said it won’t announce them to the public for another month, but drug companies might do it sooner.

Drugmakers oppose the negotiations

The pharmaceutical industry continues to fight the negotiations and several companies filed lawsuits against the government to keep negotiated prices from going into effect. They say this is all unconstitutional, and that it’s price-setting, not true negotiation, because Medicare is such a huge purchaser.

Overall, they say this process is going to hurt drug research and innovation because companies won’t bring certain drugs to market.

But what they’re telling their investors about the negotiations is less pessimistic.

“We do anticipate a net unfavorable impact in 2025,” Johnson and Johnson executive Jennifer Taubert told investors earlier this month. “However, as outlined at our enterprise business review last November, we do anticipate, as a business, growing 3% plus next year and then 5% to 7% out through 2030.”

So even though J&J has two drugs undergoing Medicare price negotiation right now, Xarelto and Stelara for psoriasis, it is still expecting pretty solid growth.

Novartis makes Entresto for heart failure, another drug under negotiation. The company told investors overall it is able to manage the losses from lower Medicare prices now, but it might get tricky in the future as more drug prices get negotiated.

“In the long run, this policy is really not good for innovation, good for patients in the United States,” Novartis CEO Vasant Narasimhan told investors July 18. “And if companies are managing, [they’re] managing by shifting away from small molecule medicines.”

Taxpayers and Medicare beneficiaries should save money

According to the nonpartisan Congressional Budget Office, however, the impact on drug development is expected to be modest. It estimates that 13 new drugs won’t come to market over the next 30 years out of the 1,300 of them that are expected to come to market.

When the CBO scored the negotiation part of the Inflation Reduction Act and said it would save the government and taxpayers $98.5 billion dollars over ten years.

Medicare beneficiaries who take these drugs should see more consistent copays starting in 2026, when the negotiated prices are expected to take effect.