The Biden administration made a significant move on Tuesday by revealing the first ten prescription drugs slated for price negotiations between manufacturers and Medicare. This marks the initiation of a contentious process designed to increase the affordability of expensive medications for elderly Americans.
Last year, President Joe Biden’s Inflation Reduction Act, passed along party lines, granted Medicare the unprecedented authority to directly negotiate drug prices with manufacturers in its nearly 60-year history. The agreed-upon prices for this initial set of drugs are set to take effect in 2026.
The ten drugs up for negotiation in the current year are as follows:
- Eliquis, produced by Bristol-Myers Squibb, used to prevent blood clotting and reduce the risk of stroke.
- Jardiance, produced by Boehringer Ingelheim, used to lower blood sugar for individuals with Type 2 diabetes.
- Xarelto, produced by Johnson & Johnson, used to prevent blood clotting and reduce the risk of stroke.
- Januvia, produced by Merck, used to lower blood sugar for individuals with Type 2 diabetes.
- Farxiga, produced by AstraZeneca, used to treat Type 2 diabetes.
- Entresto, produced by Novartis, used to treat certain types of heart failure.
- Enbrel, produced by Amgen, used to treat rheumatoid arthritis.
- Imbruvica, produced by AbbVie, used to treat various types of blood cancers.
- Stelara, produced by Janssen, used to treat Crohn’s disease.
- Fiasp and NovoLog, insulins manufactured by Novo Nordisk.
These negotiations are at the heart of the Biden administration’s efforts to curb the escalating costs of medications in the United States, a change long advocated for by some Congressional Democrats and consumer advocates who have witnessed many older adults struggling to afford necessary care.
However, the pharmaceutical industry perceives this process as a threat to its revenue growth, profits, and drug innovation. Companies like Merck and Johnson & Johnson, along with their supporters, are actively seeking to thwart these negotiations, filing at least eight lawsuits in recent months, attempting to declare the policy unconstitutional.
The drugs listed on Tuesday are among the top 50 with the highest expenditures for Medicare Part D, which covers prescription medications filled at retail pharmacies.
These ten drugs alone accounted for $50.5 billion, or approximately 20%, of the total Part D prescription drug costs from June 1, 2022, to May 31, 2023, according to the Centers for Medicare and Medicaid Services (CMS). These drugs have been on the market for at least seven years without generic competition, or in the case of biological products like vaccines, for 11 years.
In 2022, nearly 9 million seniors spent $3.4 billion out-of-pocket on these ten drugs alone, as per a senior Biden administration official.
Medicare covers roughly 66 million people in the U.S., and 50.5 million patients are currently enrolled in Part D plans, according to the Kaiser Family Foundation (KFF).
Here’s what’s next in the process:
Drug manufacturers must agree to participate in the negotiations by October 1. CMS will then present an initial price offer to manufacturers in February 2024, giving them a month to accept or counteroffer.
The negotiations will conclude in August 2024, with the agreed-upon prices published on September 1, 2024. However, the reduced prices will not take effect until January 2026.
If a drug manufacturer refuses to negotiate, they must either pay an excise tax of up to 95% of their medication’s U.S. sales or withdraw all their products from the Medicare and Medicaid markets. The pharmaceutical industry argues that this penalty could amount to as much as 1,900% of a drug’s daily revenues.
After the initial round of negotiations, CMS can proceed to negotiate prices for another 15 drugs in 2027, and an additional 15 in 2028. This number increases to 20 negotiated medications annually starting in 2029 and beyond.
Leigh Purvis, a prescription drug policy principal with AARP Public Policy Institute, emphasized that the negotiation process accumulates, possibly leading to negotiations for as many as 60 drugs by 2029.
Initially, CMS will only select Medicare Part D drugs for the medicines covered in the first two years of negotiations. It will expand to include more specialized drugs covered by Medicare Part B, typically administered by doctors, in 2028.
These drug price negotiations are projected to save Medicare an estimated $98.5 billion over a decade, according to the Congressional Budget Office.
Additionally, they are expected to reduce costs for Medicare enrollees, who on average take four to five prescription drugs each month and increasingly face out-of-pocket expenses that many find challenging to afford. A senior administration official reported that nearly 10% of Medicare enrollees aged 65 and older, and 20% of those under 65, report difficulties in affording drugs.
The pharmaceutical companies, including Merck, Johnson & Johnson, Bristol-Myers Squibb, and Astellas Pharma, are actively litigating to halt the negotiation process. The industry’s primary lobbying group, PhRMA, and the U.S. Chamber of Commerce have also filed their own lawsuits.
These lawsuits make various claims, asserting that Medicare negotiations are unconstitutional, would compel drugmakers to sell their medicines at significant discounts below market rates, and violate their free speech and excessive fine protections under the Constitution. These suits are dispersed across federal courts in the U.S., with the pharmaceutical industry aiming to obtain conflicting rulings from federal appellate courts, potentially fast-tracking the issue to the Supreme Court. Some drugmakers have already expressed their intention to take the legal battle to the highest court.
Meanwhile, the Biden administration remains committed to defending against these legal challenges. President Biden and his top health officials view these lawsuits as evidence of their progress in the fight to reduce drug prices.” Big Pharma doesn’t want this to happen, so they’re suing us to stop us from negotiating lower prices so they can boost their profits,” the president said. However, we’ll see this through. We will continue to oppose Big Pharma.
Regarding the spending on these drugs by Medicare, for the period from June 1, 2022, to May 31, 2023, Eliquis, with $16.5 billion, saw the highest spending among Medicare Part D beneficiaries, as reported by CMS. Jardiance accounted for approximately $7 billion, Xarelto $6 billion, Januvia $4 billion, and Farxiga $3.2 billion during the same period, according to CMS. Spending for Entresto, Enbrel, Imbruvica, Stelara, and the two insulins each exceeded $2.5 billion.
In the calendar year 2022, over 3.5 million enrollees used Eliquis and paid an average of $441 out-of-pocket for the blood thinner, according to the Office of the Assistant Secretary for Planning and Evaluation (ASPE) at the Department of Health and Human Services. About 1.3 million enrollees used Jardiance in 2022, paying an average of $290 out-of-pocket, as reported by ASPE. Approximately 1.3 million beneficiaries used Xarelto and paid an average of $451 out-of-pocket.
While fewer enrollees used Imbruvica and Stelara in the same year, at 22,000 and 20,000, respectively, according to ASPE, those who did incurred the highest out-of-pocket expenses: an average of $5,247 for Imbruvica and $2,058 for Stelara.
In 2022, 763,000 enrollees used Novo Nordisk’s two insulin products and paid an average of $121 out-of-pocket, according to ASPE.
Some unexpected names appeared on the list, including Farxiga and Stelara, contrary to predictions by Wall Street analysts and health policy researchers who anticipated other medications, such as Eli Lilly’s diabetes drug Trulicity or Xtandi, a rheumatoid arthritis medication from Astellas Pharma. A senior administration official suggested that changes in Medicare Part D spending might have caused the list to deviate from expectations.
In summary, the Biden administration’s unveiling of the first ten prescription drugs for price negotiations with Medicare manufacturers marks a significant step in its efforts to address the rising costs of medications in the United States. However, these negotiations face legal challenges from the pharmaceutical industry, who argue that they are unconstitutional and threaten their revenues and innovation.
The outcome of these negotiations will have far-reaching implications for Medicare beneficiaries and the pharmaceutical industry alike.