Just in time to fill the sails at the Democrat National Convention next week in Chicago, the Biden Administration yesterday released the results of its drug price negotiations made possible by the Inflation Reduction Act of 2022 (IRA).
A Fact Sheet from the Centers for Medicare and Medicaid Services (CMS) reported that the Biden-Harris Administration has reached agreement for new, lower prices for all 10 drugs selected for negotiations following passage of the IRA. These negotiated drugs are some of the most expensive and most frequently dispensed drugs in the Medicare program and are used to treat conditions such as heart disease, diabetes, and cancer. The new prices will go into effect for people with Medicare Part D prescription drug coverage beginning 1 January 2026.
By September 1, CMS will announce final prices—or Maximum Fair Prices (MFPs)—for the ten selected drugs.
To understand and appreciate yesterday’s announcement, a little history is in order.
This is a story, 18 years in the making, of government-enabled corporate greed. It’s complicated and somewhat dense. It has to be to go on that long. It’s a story of how one industry, the pharmaceutical industry, has done Olympian good while achieving Titanic profit, which has been surgically excised, Midas-like, from the hides of American taxpayers who never felt the touch.
The story
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. Since then, Washington politicians have been arguing over whether this government program should be allowed to negotiate with pharmaceutical companies the prices it pays for drugs its members need. Makes sense to negotiate with drug makers in the hopes of lowering the cost of a non-funded government program, right? Medicare beneficiaries, all 64 million of them, and the public at large, overwhelmingly supported such a move. Over the years, pharmaceutical companies spent a king’s ransom donating to politicians to secure―should we say “buy?”―their votes in opposition.
In June of this year, the CMS Actuary reported Medicare’s total gross spending for 2023 was estimated at just north of $1 trillion, or 3.58% of GDP.
Shortly after that, Statista published an eye-popping chart showing Medicare’s growth in spending since 1970.
About 13% of 2023’s spending, or $130 billion, was for Medicare Part D drugs.
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.”
Given these astronomical costs, why hasn’t Medicare negotiated the prices of the drugs its been buying from pharmaceutical manufacturers in the 18 years since Part D became law in 2006? With 64 million beneficiaries, it should have huge leverage.
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, although Medicare was buying drugs for its many millions of members, it was not allowed to even hint that a lower price might be more fair and appropriate for the government to pay. That is the very definition of a “sweet deal” for drug manufacturers.
Giving the negotiation contrarians the benefit of a doubt they more than likely don’t deserve, their argument in opposition hung on the slim thread that negotiations would lower the income of drug manufacturers, and that would, in turn, reduce the amount of money the companies invest in research and development to discover new life-saving drugs. My own opinion is that this argument is chock full of what makes the grass grow green and tall. And, by the way, the Congressional Budget Office agrees with me, although their analysists said it with a bit more eloquence.
The 2022 Inflation Reduction Act’s section dealing with Medicare Part D prices was the first time CMS was given license to attempt to stifle the rise in Medicare drug prices, which had been rising at 6% to 7% per year for the last couple of decades. According to drug savings company GoodRX, they’ve risen 34% in the last ten years, far outstripping the rate of inflation.
The Act passed without a single Republican vote. It required CMS to negotiate prices for the 10 drugs covered under Medicare Part D and Part B¹ with the highest total spending.
What it all means
Yesterday’s Fact Sheet from CMS claims the government’s landmark drug price negotiations will save Americans $7.5 billion in its inaugural year, 2026. The savings will be split between senior citizens, who will pay $1.5 billion less in out-of-pocket costs for the ten super-high-cost medications the IRA allowed to be negotiated, and the government, as its health insurance program for the elderly will pay $6 billion less to treat heart failure, blood clots, diabetes and other conditions in 2026.
The Fact Sheet asserts the medications negotiated will see prices cut by 38% to 79%. Diabetes drugs saw the biggest reductions, including a 79% discount off the list price for Merck’s Type 2 diabetes drug Januvia and a 68% cut for AstraZeneca’s Farxiga. Amgen’s Enbrel rheumatoid arthritis injection will see a 67% reduction off its 2023 list price. The smallest price cut was for AbbVie’s leukemia drug Imbruvica, with a 38% price reduction.
However, Seniors shouldn’t start popping Champaign just yet. Yesterday, Laura Tollen, senior editor for Health Affairs, threw a bit of cold water on those who want to treat what is a highly complicated issue in a simple, “Game over. We won,” manner, writing:
Because most of the first ten drugs and their close therapeutic comparators already receive deep manufacturer discounts under Part D, the program’s first round might not result in MFPs that are significantly lower than current net prices. This will not necessarily indicate program failure, but rather that the program has, at least, captured existing discounts. In this round, CMS selected products among Medicare’s highest-spending drugs—not necessarily because of their (already discounted) prices, but because of their widespread use for common conditions such as diabetes, heart disease, and arthritis. In later years, as CMS chooses additional drugs for negotiation that are not already discounted, there may be more savings potential.
Under the new Drug Price Negotiation Program, Medicare will negotiate another 15 drugs 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.
It took 18 years to get here, but here we are. The Biden-Harris Administration secured a large benefit for Medicare beneficiaries, all 64 million of them. Despite Laura Tollen’s caveat, if the earth stopped rotating tomorrow would be no less surprising than if this achievement isn’t trumpeted as total victory loud and often during next week’s Convention. This is inevitable, because I am sure the Harris campaign knows that only 36 percent of US adults are aware of the program.
Seniors vote, and Kamala Harris will be praying they’re paying attention.
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¹ Medicare will also negotiate in a similar manner the prices of Part B drugs. These are drugs administered in physicians’ offices or hospital outpatient departments. Part B drugs enter the drug pricing program in 2028.
