On August 15, 2024, in Prince George’s County, Maryland, U.S. President Joe Biden and Vice President Kamala Harris announced a significant achievement in an effort Democrats have been pursuing for more than a decade: leveraging Medicare to rein in prescription drug prices. The initiative, launched with new prices for the first 10 drugs negotiated between Medicare and drug manufacturers, is just the initial phase of a complex, multi-step negotiation process that is expected to provide substantial financial relief to taxpayers and seniors while progressively increasing pressure on pharmaceutical companies.
The move, a central piece of President Biden’s Inflation Reduction Act signed nearly two years earlier, sets a framework for subsequent rounds of negotiations scheduled to begin next year. These negotiations are expected to impact the pricing structure of several essential drugs made by major global pharmaceutical companies for the foreseeable future.
Leigh Purvis, director of prescription drug policy at the AARP Public Policy Institute, stressed the importance of these early negotiations, noting that while some may be concerned about the absence of certain drugs in this round, more expensive drugs will be included in future discussions.
Details about how these new prices compare to current discounted rates under Medicare Part D remain unclear because of the confidentiality of these financial arrangements. This makes it difficult to estimate the exact savings for Medicare plans and patients when these prices are implemented in 2026. Variations in copayments depending on the patient’s Part D plan also contribute to this uncertainty.
The Biden administration estimates that the drug price renegotiation will save the Medicare program about $6 billion and provide $1.5 billion in direct savings to beneficiaries in 2026.
Tricia Neuman, executive director of the Medicare Policy Program at KFF, commented on the smooth negotiations and impressive initial savings, anticipating greater financial benefits as more drugs enter future pricing discussions. Many of the drugs in this initial round of negotiations are about to expire their patent protection, which will soon expose them to generic competition, potentially significantly impacting pharmaceutical revenues.
For example, the patent for Bristol Myers Squibb’s widely used blood thinner Eliquis is expected to expire in the US by April 1, 2028, with similar expirations in some EU markets by 2026. This pattern suggests that drugs furthest from patent expiration may soon be prioritized in future rounds of negotiations.
By early 2025, the administration plans to select up to 15 additional drugs for the next round of negotiations, with drug companies facing significant penalties or loss of access to federal programs if they choose not to participate.
Jeff Jonas of Gabelli Funds highlighted the possibility that pharmaceutical companies could face greater challenges in future deals, especially since high-volume drugs such as Novo Nordisk’s diabetes treatment Ozempic could be included.
Negotiations are expected to expand to include more specialized drugs covered by Medicare Part B, which typically involves treatments administered in medical settings, by 2028. That could pose additional challenges for the drug industry, which does not receive as substantial discounts for Part B drugs as it does for Part D drugs.
Leerink Partners analyst David Risinger shared some insights with CNBC into the potential inclusion of major cancer treatments, such as Merck’s chemotherapy drug Keytruda, in 2028 deal discussions.
As the Democratic presidential nominee, Vice President Kamala Harris, if elected, could push for broader and more aggressive terms in negotiations, potentially influencing future legislative support depending on which party controls Congress.
The pharmaceutical industry, represented by Steve Ubl of PhRMA, has expressed concerns that these negotiations could have negative effects on revenues, profitability and long-term innovation, particularly in critical areas such as cancer, mental health and rare diseases. The industry points to the different negotiation timelines for small-molecule drugs and biologics as a discouraging factor for investment in the former, given their shorter period of exclusivity after FDA approval.
