Activists protest the cost of prescription drugs in front of the US Department of Health and Human Services (HHS) building on October 6, 2022 in Washington, DC.
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President Joe Biden's Inflation Reduction Act, passed on a party-line vote last year, gave Medicare the authority to coordinate drug prices directly with manufacturers for the first time in the federal program's nearly 60-year history.
Medicare is negotiating prices for the first round of 10 prescription drugs to make these costly treatments more affordable for older Americans. By autumn, the federal government will publish the agreed prices for these drugs, which will come into force from 2026.
The results of the talks will be of great importance to the pharmaceutical industry, which sees the process as a threat to its sales growth, profits and drug innovation.
The final prices will determine how much revenue the companies that make the drugs are likely to lose in a few years. The numbers will also give other drugmakers an idea of how badly their sales could be hit if their drugs are selected for future rounds of negotiations.
But the final agreed prices are also important for patients because they get a first impression of how much money they can save through the discussions, at a time when it is becoming increasingly difficult for many older people to afford medication .
“We will see how much this program can negotiate and it will help the patients who are already participating.” [the drugs] “You get an idea of the savings they're going to make,” said Leigh Purvis, director of prescription drug policy at the AARP Public Policy Institute.
AARP is the influential lobbying group that represents people over 50. The organization has advocated for Medicare's new bargaining powers.
A pharmacist holds a bottle of the drug Eliquis, manufactured by Pfizer Pharmaceuticals, at a pharmacy in Provo, Utah, on Jan. 9, 2020.
George Frey | Portal
The negotiated drugs are among the top 50 highest spenders for Medicare Part D, which covers prescription drugs dispensed by seniors at retail pharmacies.
According to the Biden administration, in 2022, 9 million seniors spent $3.4 billion out of pocket on the 10 drugs, and some paid more than $6,000 a year for just one of the drugs on the list.
Nearly 10% of Medicare enrollees ages 65 and older and 20% of those under 65 report difficulty financing medications, the government said in August.
Medicare covers about 66 million people in the U.S., and 50.5 million patients are currently enrolled in Part D plans, according to health policy research organization KFF.
The Biden administration formally launched the negotiation process in August when it named the first round of drugs that would be subject to price negotiations. These include diabetes drugs from Merck and AstraZeneca as well as blood thinners from Bristol Myers Squibb and Johnson & Johnson.
Two months later, all the companies that make the drugs on the list signed agreements to participate in the negotiations, even after most of them sued the Biden administration to break off the talks.
However, the actual negotiation phase begins on February 1, when the Centers for Medicare & Medicaid Services makes initial offers for the “maximum fair price” for each of the 10 selected drugs. CMS must justify why the price is appropriate based on several factors.
This includes data on U.S. sales volume, a manufacturer's research and development costs, federal financial support for the drug's development, data on pending or approved patent applications and exclusive rights, or a period of time during which a brand-name drug is protected from generic competition .
The first 10 drugs are subject to price negotiations
- Eliquis, manufactured by Bristol Myers Squibb, is used to prevent blood clotting and reduce the risk of stroke.
- Jardiance, made by Boehringer Ingelheim, is used to lower blood sugar in people with type 2 diabetes.
- Xarelto, made by Johnson & Johnson, is used to prevent blood clotting and reduce the risk of stroke.
- Merck's Januvia is used to lower blood sugar in people with type 2 diabetes.
- Farxiga, made by AstraZeneca, is used to treat type 2 diabetes.
- Novartis' Entresto is used to treat certain types of heart failure.
- Enbrel, manufactured by Amgen, is used to treat rheumatoid arthritis.
- Imbruvica, made by AbbVie, is used to treat several types of blood cancers.
- Janssen's Stelara is used to treat Crohn's disease.
- Fiasp and NovoLog, insulins from Novo Nordisk.
After receiving the offers, companies have one month to accept them Cagainst it. Negotiations will end if CMS and drugmakers reach an agreement.
If CMS rejects the counteroffer for a drug, the agency may schedule up to three meetings with the drug manufacturer to discuss other pricing options.
CMS must make final price offers to manufacturers by July 15, and those companies have two weeks to accept or reject them. If drugmakers can't agree on a price with Medicare by Aug. 1, they could be forced to pay an excise tax of up to 95% of a drug's U.S. sales or have all of their drugs removed from the Medicare and Medicaid markets gain weight.
CMS will publish the agreed prices on September 1st.
After the first round of discussions, CMS will be able to negotiate prices for an additional 15 drugs that will take effect in 2027 and another 15 that will take effect in 2028. From 2029, the number will increase to 20 negotiated medications per year.
CMS will only select Medicare Part D drugs for those drugs covered in the first two years of negotiations. In 2028, additional specialty medications will be added that are covered by Medicare Part B and are typically administered by physicians.
The legal battle between drugmakers and the Biden administration could also see crucial developments in 2024, as cases may move to appeals courts.
Merck, Johnson & Johnson, Bristol Myers Squibb, AstraZeneca, Novo Nordisk, Novartis and Boehringer Ingelheim are all suing to stop the negotiation process. Each of the companies has selected a drug for negotiations.
The industry's largest lobbying group, PhRMA, and the country's largest business lobbying organization, the U.S. Chamber of Commerce, have filed their own lawsuits. A federal judge in September rejected an injunction sought by the Chamber of Commerce to block price negotiations.
All drugmakers and both trade groups have sought summary judgment in their cases against the Biden administration, arguing that price negotiations are unconstitutional and must stop.
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Decisions in most of these cases could come in the next six months, according to Kelly Bagby, vice president of litigation at the AARP Foundation.
She said that regardless of the nature of the decisions, appeals would likely be made in federal appeals courts across the United States. The pharmaceutical industry may seek to obtain conflicting rulings from these appeal courts, which could send the matter to the Supreme Court on a fast-track basis, Bagby added.
“The Supreme Court would feel obliged to take the case and evaluate the constitutionality of the Inflation Reduction Act itself,” Bagby said, noting that the matter may not reach the highest court in the land until 2025.
Some drugmakers, such as Merck, have already confirmed that they plan to take their legal dispute to the Supreme Court.
The drugmakers argue in the lawsuits that the negotiations would force them to sell their drugs at huge discounts below market prices. They claim this violates the Fifth Amendment, which requires the government to pay fair compensation for private property used for public use.