Medicare Drug Negotiation Moves Forward With Announcement Of First Ten Most Expensive Drugs

August 31st, 2023 by Tom Lynch

At a Washington press conference on Tuesday, President Joe Biden announced the first ten drugs whose prices Medicare is now required to negotiate following passage of last year’s Inflation Reduction Act (IRA). The pharmaceutical industry is outraged.

This story has been 17 years in the making. It’s a story of government-enabled corporate greed. It centers on the Pharmaceutical industry, an industry that has done Olympian good while achieving Titanic profit, profit which has been surgically excised from the hides of American taxpayers who never felt the touch. Here’s how we got here.

Medicare Part D, a prescription drug benefit plan for Medicare beneficiaries, became law on 1 January 2006 under the George W. Bush administration and a Republican controlled Congress. The legislation was enacted with no funding provisions whatsoever. It also explicitly prohibited the government from negotiating with the pharmaceutical industry the drug prices it pays for its beneficiaries. Since then, Washington politicians have been arguing over whether this prohibition is appropriate and should continue. Medicare beneficiaries, all 64 million of them, and the public at large, have overwhelmingly supported such a move. Over the years, pharmaceutical companies have spent a king’s ransom donating to politicians to secure―should we say “buy?”―their votes in opposition.

What’s been the result?

  • study published in October of 2022 in the Journal of the American Medical Association concluded more than a quarter (27.2%) of Medicare spending is now for prescription drugs;
  • That would be $180 billion, as reported by the Medicare Payment Advisory Commission for 2020;
  • According to a 2019 Kaiser Family Foundation report, the total we in the US spent on prescription drugs in 2017 was $333 billion; and,
  • In 2019, the Rand Corporation studied and compared US prices to 32 other OECD countries (The Organization for Economic Cooperation and Development – the most developed nations) and reported our prices are “nearly twice those of other countries after adjusting U.S. prices downward to account for rebates and other discounts paid by drug companies.” Interestingly, while the Rand study found brand name drugs were 344% higher than prices in the other 32 countries, “For unbranded generics, U.S. prices were lower than those of other countries—specifically, 84 percent of prices in the comparison countries combined.” However, pharmaceutical companies have gone to great lengths to delay brand name drugs from making the tortuous journey to generics.

But now with Tuesday’s announcement, the gravy train will begin to slow and might even be forced over the next few years to stop. Why? Because of the Inflation Reduction Act.

Why hasn’t Medicare been able to negotiate drug prices for its beneficiaries like the Department of Veterans Affairs can for the veterans it serves? VA negotiations have resulted in the cost of its drugs being half what Medicare pays, or smack dab at the average OECD countries pay.

As the Kaiser Family Foundation explains:

Under the Medicare Part D program, which covers retail prescription drugs, Medicare contracts with private plan sponsors to provide a prescription drug benefit. The law that established the Part D benefit included a provision known as the “noninterference” clause, which stipulates that the HHS Secretary “may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors, and may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.”

In other words, the 2006 law forbade Medicare from trying to get a decent deal for its 64 million members.

Now, pursuant to the Inflation Reduction Act’s new Drug Price Negotiation Program, in 2024 Medicare is to negotiate the price of 10 Part D drugs, with new prices to be effective in 2026, another 15 for 2027, another 15 for 2028, and another 20 for 2029 and later years. The drugs to be chosen for negotiation will be selected from among the 50 drugs with the highest total Medicare spending. The number of drugs with negotiable prices  will accumulate over time.

And on Tuesday, Biden announced the first ten drugs to be price-negotiated. As required by the IRA, they are blockbusters. The top three drugs in the list are:

  • Eliquis, jointly made by Bristol-Myers Squibb and Pfizer, which treats blood clots and cost Medicare $16.5 billion in the one year period from June, 2022, through May, 2023;
  • Jardiance, a drug to treat Type 2 diabetes, which is hyper-advertised on television and brought in $7.1 billion for its makers, Eli Lilly and Boehringer Ingelheim; and,
  • Xarelto, another blood clot drug jointly developed by Bayer and Janssen Pharmaceuticals, a unit of Johnson & Johnson. Xarelto cost Medicare $6 billion in the last year.

In July of this year, knowing Tuesday was coming, the pharmaceutical industry and its allies filed four lawsuits in four different court venues, amounting to a legal blitz in the span of just over two weeks. The complaints include a range of legal arguments, some of which overlap.

The lawsuit filed by PhRMA (Pharmaceutical Research and Manufacturers of America) and two other plaintiffs alleges the drug negotiation program is unconstitutional for three main reasons. First, the groups contend Congress shouldn’t have delegated such broad authority to the Department of Health and Human Services (HHS); second, the program denies manufacturers their due process rights; and third, it imposes a “staggering” tax for noncompliance.

Another lawsuit from the U.S. Chamber of Commerce and local business groups made similar arguments, though they also included other claims in their quest to bring down the program.

Finally, the Jones Day law firm has brought suit on behalf of drug manufacturers Bristol Myers Squibb and Merck. Their arguments assert that the rules force the drugmakers to agree to the price HHS sets and thus violate their free speech rights.

“Force the drugmakers to agree to the price HHS sets…” Except — What the Inflation Reduction Act imposed on drugmakers was a negotiation, not a drug price mandate.

This seems destined to wind up on the docket of the Supreme Court.

As might be expected, AARP loves the idea of lower prices for its members, most of whom are Medicare beneficiaries. That’s a powerful voting bloc, and you can expect both President Biden and everyone else in the Democratic Party to look all 64 million of them squarely in the eyes and trumpet the lower Medicare drug prices due to the Administration’s negotiations, the results of which the IRA requires HHS to publicly disclose on 1 September 2024, just two months before the election. And you can be sure mention will be made repeatedly that not a single Republican voted in favor of the law that made it all possible.

One other change mandated by the IRA regarding drug costs for Medicare beneficiaries involves out-of-pocket costs, which can be considerable. In 2022, the average out-of-pocket costs for this group was $6,497. In 2025, the IRA requires those costs to be capped at $2,000.

The Medicare drug provisions of the IRA are wildly popular with both Democrats and Republicans. In a survey taken by the Kaiser Family Foundation late last year, 89% of Democrats and 77% of Republicans said they favored the plank of the Inflation Reduction Act that authorizes negotiations.

Notwithstanding what the public thinks, Republican members of Congress have been sharply critical of allowing Medicare to negotiate the prices it pays for drugs, calling the measure tantamount to imposing government price controls.

I’m curious to see how the Republican presidential candidates handle this issue. Although every single one of them has vowed, if elected, to repeal the Inflation Reduction Act, thus far, with the exception of Mike Pence, who called it “bad policy,” they’ve all  been silent about Medicare negotiating the price of drugs.

Are they all, blissfully ignorant, swimming against the tide of public opinion, or do they know something the rest of us don’t?

What do you think?