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Medicare’s first-ever drug price negotiations, briefly explained

Patients stand to save a lot of money.

An array of variously colored pills is scattered across a background of $100 bills.
The federal government has announced the 10 medications that will be included in the first round of drug price negotiations.
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Dylan Scott covers health care for Vox. He has reported on health policy for more than 10 years, writing for Governing magazine, Talking Points Memo and STAT before joining Vox in 2017.

More than a decade after Democrats first ran on the proposal, Medicare is finally set to start negotiating prices for certain prescription drugs.

This week, the federal government announced the 10 medications that would be included in the first round of negotiations. New prices would take effect in 2026.

The 10 drugs on the list are a diverse set. Some are taken by millions of people with price tags in the low thousands of dollars annually. Others are priced at more than six figures per year and taken by a much smaller number of patients. Together, the list represents the multifaceted ways that high drug prices put pressure on both patients and insurers and raise the risk that people will not have access to medicines that they need.

Even if you don’t take one of these drugs, the negotiations should help you if you’re on Medicare. Congress used the estimated $99 billion in savings over 10 years to cap annual out-of-pocket costs at $2,000 for all Medicare beneficiaries.

“Everybody is going to benefit,” Stacie Dusetzina, a health policy professor at Vanderbilt University who sits on the program’s congressional advisory board, told me. “You have the security of a $2,000 cap.”

The negotiation program represents a milestone for the US health system: The federal government’s largest health care program (by spending) is using its enormous leverage to try to arrest the high prices set by drug makers for their products. The United States pays more for prescription drugs than any other country in the world and yet, compared with other nations’ health systems, the US government has had limited power to try to bring prices down. This new program, created by the Inflation Reduction Act, gives Medicare a powerful new tool.

Now that the first 10 drugs have been selected, the process can begin. Here is how it will unfold:

  1. Drug makers have one month to sign an agreement to participate in negotiations and submit data for Medicare to consider for its negotiated price
  2. By February 1, 2024, Medicare will offer its initial price on the selected drugs; the manufacturers then have one month to accept or submit a counterbid
  3. There will be an opportunity for negotiations during the spring and summer of next year. Then in September 2024, Medicare will announce the final prices. The program will begin paying those prices in 2026.

The process will begin anew when, in February 2025, Medicare will announce another 15 drugs that will be subject to negotiation, with those prices to take effect in 2027. In every subsequent year, more drugs will be added to the negotiation program.

That is, if the courts allow the negotiations to proceed. The pharmaceutical industry has already filed a bevy of lawsuits, each with its own legal rationale, to put a stop to the program before it begins. Many legal experts believe this litigation will fail — how can the government run a sustainable program if it has no discretion about the prices it pays for medications? — but the rulings in those cases will ultimately determine whether Medicare drug negotiations are allowed to test their potential to save money for US patients and their government.

In the meantime, the drugs Medicare is planning to negotiate over can be broken into two buckets.

1) The pretty expensive drugs for chronic diseases taken by hundreds of thousands — even millions — of people

Seven of the 10 drugs announced for negotiation fall into this category:

  • Eliquis, which treats and prevents blood clots ($561 list price for one-month supply)
  • Jardiance, which treats diabetes and heart failure ($570 list price)
  • Xarelto, which treats and prevents blood clots and reduces related risks for people with heart disease ($542 list price)
  • Januvia, which treats diabetes ($586 list price)
  • Farxiga, which treats diabetes, heart disease, and chronic kidney disease ($549 list price)
  • Entresto, which treats heart failure ($545 list price)
  • A class of insulin injectors and their refill products: Fiasp, Fiasp FlexTouch, Fiasp PenFill, NovoLog, NovoLog FlexPen and NovoLog PenFill

What unites these drugs is that a lot of Americans take them, which may be because diabetes and heart disease are among the most common chronic health conditions in the US, and they must take them regularly. More than 580,000 people on Medicare took Entresto from June 2022 to May 2023; more than 1 million were prescribed Xarelto and Jardiance. Eliquis was the most commonly used drug on the list, taken by more than 3.7 million people. It cost Medicare about $16.5 billion over that period.

Even if most people on Medicare don’t pay the list price — their prescription drug coverage may pick up part of the tab — it can still affect the prices they do pay. Patients may have a deductible to meet before their benefits kick in or they may be responsible for paying coinsurance, which is calculated based on the list price.

These drugs also help people manage chronic health conditions to avert costlier health problems down the road. The consequences can be grave if people are forced to skip their medications because of cost. Insulin in particular has been subject to rationing, which can reduce its effectiveness in the long term and, in some individual cases, has led to serious emergencies and even death for patients. (The IRA also included a provision to cap monthly insulin costs at $35 for Medicare patients.) Research has found that even an additional $10 in cost can lead to people taking less of the medications they need.

Medicare negotiations won’t be a salve to all of those problems. But they will save patients and the program money, and under the IRA, those government savings are being used to cap drug costs for seniors on the program.

2) The super-expensive drugs for people with serious, potentially life-threatening illnesses

The second group of drugs subject to Medicare negotiations are taken by a much smaller group of people — but for the people who do need them, their ability to afford them could determine in the very near future whether they live or die:

  • Enbrel, which treats rheumatoid arthritis, psoriasis, and psoriatic arthritis ($1,762 list price for a week’s dosage)
  • Imbruvica, which treats various blood cancers ($13,546 list price for roughly a month’s worth of tablets)
  • Stelara, which treats psoriasis, psoriatic arthritis, Crohn’s disease, and inflammatory bowel disease ($25,497 list price for an 8-week supply)

The number of affected Medicare patients ranges from about 20,000 for Stelara and Imbruvica to nearly 50,000 for Enbrel. Nevertheless, these drugs cost the Medicare program more than $2.6 billion each from June 2022 to May 2023.

These patients in particular will benefit from the negotiated prices and the new out-of-pocket cap established by Congress, Dusetzina said. Under the old Medicare benefit design, they may have had to spend upward of $10,000 per year for their medications. Now, their costs will not exceed $2,000 annually.

This is the tragedy of America’s drug-pricing crisis. The drug industry has developed and produced remarkable treatments that can stop cancer or help people live with what would otherwise be debilitating diseases.

But too often, those treatments come at a price that either patients cannot afford or that require health insurers to hike premiums for everyone to cover the costs — or both. Our notoriously ungenerous health insurance has made the affordability crisis worse, but so has the carte blanche granted to drug companies under the current policy regime: they can set whatever list prices they desire while their products are protected by a patent. Dusetzina told me she would not be surprised if the next rounds of drugs are targeted more toward the highest-cost medications for serious acute illnesses like cancer, given that the initial list is more weighted toward (relatively) lower-cost drugs for chronic diseases.

Historically, drug makers have argued that health insurance companies would negotiate those prices down, so nobody really had to pay them. They’d even say that, for Medicare, the different private Part D plans were already negotiating prices on behalf of their patients.

That was true. But it prevented Medicare from using all of its leverage to try to reduce prices for everyone because each part D plan represented a smaller number of people than Medicare does altogether. (There are more than 800 Part D plans.) Now, that is finally about to change.

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