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Medicare in the coming days will announce the first 10 drugs selected for price negotiations, launching a process that provides clear benefits to everyone with Medicare drug coverage, policy experts say — even as it’s beset by legal challenges from drugmakers and industry groups.
Last year’s Inflation Reduction Act requires the U.S. Department of Health and Human Services for the first time to negotiate prices with pharmaceutical companies for certain drugs covered under Medicare, touching off a torrent of speculation about which drugs will be first on the negotiating table and a spate of lawsuits from drugmakers whose products could be affected. AstraZeneca PLC
AZN,
on Friday became the latest industry player to challenge the negotiations in court, for a total of at least eight such lawsuits now pending.
The Centers for Medicare and Medicaid Services will announce 10 drugs selected for the initial round of negotiations by Sept. 1, and medications widely expected to be on the list include Bristol Myers Squibb Co.
BMY,
and Pfizer Inc.’s
PFE,
blood thinner Eliquis, Merck & Co. Inc.’s
MRK,
diabetes drug Januvia, Amgen Inc.’s
AMGN,
arthritis drug Enbrel, and AbbVie Inc.
ABBV,
and Johnson & Johnson’s
JNJ,
blood cancer treatment Imbruvica.
For the vast majority of Medicare beneficiaries, however, the exact drugs selected matter a lot less than the fact that the negotiation process is moving forward. That’s because “the negotiations are a way to pay for a dramatic expansion” of the Medicare prescription drug benefit, Stacie Dusetzina, a health policy professor at Vanderbilt University School of Medicine, told MarketWatch. Rather than negotiations translating directly into savings at the pharmacy counter, Dusetzina said, many people on Medicare will see the benefits indirectly, “because their benefits will become more generous.”
Among the most significant changes coming for the 50 million people enrolled in Medicare prescription-drug coverage, policy experts say, is a $2,000 cap on out-of-pocket spending that kicks in for 2025–a full year before the first negotiated prices take effect. People facing the highest out-of-pocket drug costs will also get a break next year, when the 5% coinsurance requirement for Part D enrollees who hit the “catastrophic” coverage threshold–set at $8,000 in 2024–will be eliminated.
The broad overhaul of Medicare drug benefits and out-of-pocket spending cap “provide real financial protection” for Medicare enrollees and their families, Dusetzina said. “You have the peace of mind knowing that in the worst-case scenario, you don’t have to spend more than $2,000.”
Those are potentially life-saving changes for people relying on pricey medications. Janet Kerrigan, 67, of Myrtle Beach, S.C., was diagnosed with multiple myeloma in 2011, before she enrolled in Medicare. Staggering under the cost of medications–including an $11,000 copay for one drug–a stem cell transplant, and being forced to leave her job as a critical care nurse as she became immunocompromised, she said, she drained her retirement accounts and was nearly forced to file for bankruptcy. Now on Medicare, she has finally beaten her cancer, and she’s cheering the rollout of Medicare drug-price negotiations. “There’s no reason why drugs have to be this costly for people,” she said. A $2,000 spending cap is reasonable, she said, “but when you start looking at $1 million, you want to crawl into a hole and cry.”
The more generous Medicare benefits rolling out in the next few years are possible largely because the drug-price negotiations are expected to save the federal government nearly $100 billion over 10 years, according to Congressional Budget Office estimates. Although the negotiations will initially affect only a small subset of drugs covered by Medicare, they’re expected to deliver outsized savings because they’re focused on drugs that account for the highest levels of spending in the Part D prescription-drug program. In 2021, just 10 top-selling medicines — out of more than 3,500 covered drugs–accounted for $48 billion in spending, or 22% of total Medicare Part D spending that year, according to an analysis by KFF, a health policy nonprofit.
Whether Medicare enrollees see negotiated prices translate directly into any savings at the pharmacy counter will depend not only on which drugs are selected for negotiation and the magnitude of the negotiated price reductions but also the type of cost-sharing their Part D plan requires for that drug. A patient paying a copay–a flat dollar amount each time she picks up her prescription at the pharmacy–may keep paying that same dollar amount even if the government negotiates a huge price reduction on that medication. But if her plan requires coinsurance–meaning she has to pay a percentage of the drug’s price rather than a flat dollar amount–government price negotiations could trim her out-of-pocket costs, policy experts say.
For higher-cost drugs, Medicare prescription-drug plans are more likely to charge coinsurance, said Juliette Cubanski, deputy director of the Medicare policy program at KFF. Pricier medications are likely to be on a Part D plan’s “specialty” tier, where enrollees get charged coinsurance of 25% to 33%, Cubanski said. In those cases, she said, “a lower negotiated price will have a meaningful impact” in cutting enrollees’ out-of-pocket costs.
But some drugs whose prices are likely to be negotiated don’t have the highest list prices and may have flat copays in Medicare prescription-drug plans, Cubanski said. Those drugs, such as Eliquis, are considered likely candidates for negotiation because they’re so widely used. Total Medicare spending on Eliquis was $12.6 billion in 2021–far higher than any other drug, according to KFF.
The negotiation process could also affect Medicare enrollees’ costs for some drugs that aren’t selected for negotiation, some researchers said. When the government negotiates a lower price for a particular drug, drugmakers offering competing drugs in the same class may be pressured to match that price. If the drugmakers simply lowered their prices directly, that could help patients. The concern, however, is that Part D plans could use the negotiated prices to extract bigger rebates from other drugs in the same class, said Dr. Benjamin Rome, a physician and researcher at Harvard Medical School — which would put more money in insurers’ pockets but wouldn’t necessarily help patients.
If higher-priced drugs are offering bigger rebates, that could also give Part D plans an incentive to give those drugs more favorable formulary placement than the drugs with lower negotiated prices, some researchers say. CMS has indicated that it will scrutinize such practices and require plans to provide justification if they give less favorable placement to the negotiated drugs, which could steer Medicare enrollees toward higher-priced medications.
Government-negotiated prices in Medicare may affect drug prices more broadly–even for people who have private health insurance, some researchers say. Medicare will ultimately publish not only the prices it negotiates but also the justification for those prices, and “that’s very helpful information if you’re a private insurance company” trying to negotiate prices, Rome said.
“We may only start with 10 drugs” being negotiated, David Mitchell, president of patient advocacy group Patients for Affordable Drugs, said on a call with reporters Thursday. “But the whole structure of the Inflation Reduction Act extends benefits to millions of people.”
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