The U.S. Department of Health and Human Services (HHS) on Tuesday announced the first 10 Medicare Part D drugs that will be subject to price negotiations, the headlining healthcare-related provision of the Inflation Reduction Act.
Signed in August 2022, the law gave Medicare authority to negotiate with drug manufacturers over the prices of selected drugs. The agreed-upon prices will be announced by Sept. 1, 2024, and will take effect in 2026.
The 10 drugs are:
The process is scheduled to encompass more drugs as time goes by, with negotiated prices taking effect for up to 15 additional Part D drugs in 2027, 15 additional Part B or Part D drugs in 2028, and 20 additional drugs each year thereafter through at least 2031.
About the drugs
Eliquis, the most expensive drug on the list at $16.5 billion in Medicare costs over a year-long period ending May 31, is an anticoagulant, as is Xarelto. Among the other conditions treated by the selected drugs are:
- Diabetes (Jardiance, Januvia, Farxiga, NovoLog, the last of which also includes products with the Fiasp brand name)
- Heart failure (Jardiance, Farxiga, Entresto)
- Psoriasis (Enbrel, Stelara)
- Blood cancers (Imbruvica)
Drugs generally are eligible for consideration if they have been on the market for at least nine years since FDA approval (13 years for biologics) and have no generic or biosimilar competition. CMS was to select eligible drugs with the highest gross Medicare spending in the prior year.
Until 2030, the maximum fair price established by negotiations will be 75% of the average manufacturer price for small-molecule drugs on the market for 16 years or fewer and 40% for those on the market more than 16 years.
When negotiated prices begin for Part B drugs in 2028, Medicare will shift from paying providers 106% of average sales price to 106% of the maximum fair price for the selected drugs.
Facts and figures
Over a year-long period ending in May, the 10 drugs accounted for about 20% ($50.5 billion) of Part D covered-drug costs, according to a news release.
Medicare enrollees paid $3.4 billion in out-of-pocket costs for the drugs in CY22, including $5,247 per enrollee for Imbruvica, used to treat certain kinds of leukemia and lymphoma (the average was only $187 for those who receive the Part D low-income subsidy, compared with $6,497 for those not receiving the subsidy).
Stelara ($4,207) and Enbrel ($2,005) also had relatively high out-of-pocket costs for nonsubsidized enrollees.
An estimated 9 million Part D enrollees used the 10 drugs in 2022, led by Eliquis, with more than 3.5 million. Jardiance and Xarelto each had more than 1.3 million users.
The Congressional Budget Office in 2022 estimated that drug price negotiations would reduce federal spending by nearly $102 billion through 2031.
How the negotiations work
Manufacturers have until Oct. 2 to submit data and information on the selected drugs. CMS then will conduct meetings with the companies, including patient-focused public listening sessions.
CMS will send an initial offer to each manufacturer by Feb. 1, and the companies will have a month to accept the offer or make a counteroffer. Negotiations can continue over a maximum of three bargaining sessions through Aug. 1.
Manufacturers are not keen to participate in the process and have launched both public relations campaigns and litigation in opposition. On the pr front, the sector has said the price constraints resulting from negotiations will restrict innovation in drug manufacturing, although CMS projects that only about one fewer drug is expected to hit the market through 2032 as a result of the Inflation Reduction Act.
“Giving a single government agency the power to arbitrarily set the price of medicines with little accountability, oversight or input from patients and their doctors will have significant negative consequences long after this administration is gone,” the Pharmaceutical Research and Manufacturers of America (PhRMA) said in a news release Tuesday.
The law also is the subject of at least eight lawsuits that were filed even before Tuesday’s announcement. Plaintiffs include PhRMA and companies such as Johnson & Johnson, Merck and Bristol Myers Squibb.
In its lawsuit, Merck, which manufactures Januvia, described the negotiation process as “a sham” that would obligate manufacturers to meet HHS’s price or face a “ruinous daily excise tax amounting to multiples of the drug’s daily revenues” (the excise tax starts at 65% of the product’s sales revenue and increases to 95% with continued noncompliance).
The lawsuit states, “This is not ‘negotiation.’ It is tantamount to extortion,” and, Merck argues, unconstitutional.
The Inflation Reduction Act aims to improve the affordability of drugs in the Medicare program in several other ways. Starting this year, manufacturers owe a rebate to Medicare on the portion of any Part B drug price that exceeds inflation (mirroring a standing provision in Medicaid). A KFF analysis found half of Medicare-covered drugs would have met that threshold in 2020.
Other provisions that took effect this year limit out-of-pocket costs for insulin to $35 per month and eliminate vaccine cost-sharing for Part D beneficiaries. Next year, limits on annual out-of-pocket spending will begin in Part D.