5 takeaways from first Medicare drug price negotiations

August 16, 2024

The first round of negotiated prices of 10 drugs was unveiled by the White House amid much fanfare Thursday, as Democrats celebrated it as a crowning achievement years in the making.  

Administration officials touted $6 billion in savings to taxpayers, and about $1.5 billion in savings to seniors’ out-of-pocket spending in 2026.  

Here’s what to know: 

Negotiations worked — mostly

Drugmakers have said the process was not a legitimate negotiation, but all of them agreed to participate, and none pulled their drugs from the Medicare program. 

“The negotiations were comprehensive. They were intense. It took both sides to reach a good deal,” Health and Human Services Secretary Xavier Becerra said of the talks.  

Federal officials held three meetings with each participating drug company to discuss the offers and counteroffers and attempt to arrive at what officials said was a “mutually acceptable price” for the drug. 

Negotiated prices were reached for five of the drugs during those meetings. Administration officials accepted manufacturer counteroffers for four of those drugs.

For the other five, Medicare officials issued a final written offer to the pharmaceutical companies. If the offer was rejected, the companies would have needed to remove their drugs from Medicare or face steep financial penalties.  

“I think CMS has a lot of incentives, particularly in the context of litigation, to make this look as much like a negotiation as they can, and recognize that if they came in with, you know, a $0 offer, that the manufacturers would have left the table, and certainly have used that information as part of ongoing and future litigation,” said Ross Margulies, a partner at Manatt Health.  

Democrats see a major win, and a possible campaign staple

President Biden and Vice President Harris took a resounding victory lap on Thursday following the announcement. 

“For years, Big Pharma blocked Medicare for negotiating lower drug prices,” Biden said. “This time, we finally beat Big Pharma.” 

The announcement was made two weeks before the legal deadline and days ahead of the start of the Democratic National Convention, an indication that the Biden administration — including Harris, the Democratic presidential nominee — is eager to campaign on the savings. 

“For years, Big Pharma has often inflated the price of life-saving medications, often charging many times what it would cost to make just to increase their profits, and millions of Americans have suffered as a result,” Harris said. “My entire career, I have worked to hold bad actors accountable and lower the cost of prescription drugs.” 

Democrats in Congress also praised the savings. 

“Exorbitant prices should never stand between Americans and the life-sustaining medications they need. This announcement will save patients and taxpayers billions of dollars and these savings will grow as Medicare negotiates the prices of even more drugs,” Sen. Amy Klobuchar (D-Minn.) said in a statement.  

“These lower drug prices negotiated by the Biden-Harris administration, using the authority Democrats empowered them with, will make a world of difference for countless patients when they go into effect in 2026,” Sen. Patty Murray (D-Wash.) said in a statement.  

We don’t really know the true savings Medicare is getting for each drug

The Biden administration promoted massive savings, and Biden even posted a graphic on social media showing the discounts, which ranged between 38 percent and 79 percent. All but one of the drugs had a savings of at least 50 percent. 

But the figures released by CMS are based on a drug’s list price. Rebates and discounts separate from negotiations mean Medicare often pays less than the list price. However, that amount is secret.  

Since Medicare doesn’t disclose the net price it pays for drugs, it’s hard to ascertain the exact savings that were gained through negotiations.  

“There are places, potentially, where lower prices were being paid. But in many instances, Medicare was paying the list price,” said Bailey Reavis, manager of federal relations at the consumer health nonprofit Families USA. 

Medicare beneficiaries don’t usually pay the full list price. Some people have co-pays or coinsurance based on a percentage of the list price, but for individual patients, the amount they save will largely depend on their insurance plan.  

“List price matters in very, very few circumstances,” said Manatt’s Margulies.  “No one pays list price, right? I don’t think that’s a helpful comparison and does overstate the quote-unquote success of the negotiations here.” 

Drug companies objected, but also indicated the deal won’t hurt much

Almost immediately after the initial prices were announced, drug companies and allied groups decried the “maximum fair price” and called the negotiation process government price setting.  

“The imposed ELIQUIS MFP does not reflect the substantial clinical and economic value of this essential medicine, which is widely recognized for its effectiveness in reducing stroke-related events, hospitalizations, and extended rehabilitation needs,” Bristol Myers Squibb, the manufacturer of Eliquis, a blood thinner, said in a statement. 

“The administration is using the IRA’s price-setting scheme to drive political headlines, but patients will be disappointed when they find out what it means for them,” said Steve Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA). 

But for all their opposition, many of the executives told shareholders and analysts the final price offers won’t materially impact their companies’ respective bottom lines

“Now that we have seen the final price, we’re increasingly confident in our ability to navigate the impact of IRA on Eliquis,” Chris Boerner, CEO of Bristol Myers Squibb, said during a July 26 earnings call with analysts.  

Wall Street on Thursday essentially shrugged off any negative impacts, as many companies finished the day with stocks relatively unchanged. 

Chris Meekins, an analyst at Raymond James, wrote in a research note that the industry came out ahead. 

“Our conclusion after seeing the negotiated rates is that the pharmaceutical companies have won relative to what could have happened,” he wrote. “Now, the industry would have preferred to never have had negotiation in the first place, but the impact is far less than politicians proclaimed and the industry as a whole seems to be managing this fine so far.” 

The program is set to scale up in the future — if it still exists

According to administration officials, this first round of talks set the stage for successful negotiations going forward. 

CMS is set to pick the next 15 drugs covered under Part D for negotiations by Feb. 1, 2025, and those prices will take effect in 2027. It will expand to 20 drugs starting in 2028.  

The negotiated prices will be in effect until the drugs are no longer eligible for the program. 

“What we had created is, I think, a really strong foundation for future drug price negotiations by the administration,” said Stacy Sanders, chief competition officer for the Department of Health and Human Services. “This process was genuine, it was thoughtful. It would involve a true back and forth with the prescription drug companies.” 

A lot rides on the November elections and the next administration. Republicans have decried the IRA generally, and the Medicare negotiation process specifically, and have indicated they would likely try to repeal the provision if they control the government next year. 

“Addressing the high costs of prescription drugs is an essential priority for Congress, but cannot be done in a way that crushes innovation and creates more instability for seniors on fixed incomes,” said Rep. Brett Guthrie (R-Ky.), chairman of the Energy and Commerce health subcommittee.  

It’s not clear what former President Trump would do if he wins another term. He has been critical of the pharmaceutical industry, though he abandoned a 2016 campaign promise to let Medicare negotiate drug prices.  

Separately, drug companies have filed a slew of lawsuits seeking to halt the process and have it declared unconstitutional. They haven’t been successful yet, but many of the cases are still progressing through the legal system.