What’s next for Biden’s Medicare drug price negotiations

The Biden administration on Thursday reached a milestone in Democrats’ decades-long quest to make use of Medicare to drive down prescription drug costs, releasing recent prices for the primary 10 medications subject to negotiations between the federal program and drugmakers.

However the announcement is only the start of a controversial, multi-round process that would save more cash for taxpayers and older Americans and put more pressure on pharmaceutical corporations over time. It is a key provision of President Joe Biden’s signature Inflation Reduction Act, which was signed into law almost exactly two years ago. 

The agreed-upon prices, which go into effect in 2026, set the precedent for the longer term rounds of negotiations that can kick off next yr. Those talks will likely affect prices in the approaching years for dozens more widely used drugs made by the biggest pharmaceutical corporations on this planet.

“I believe the expectation that folks must have is that that is just the beginning. These are only the primary ten drugs,” said Leigh Purvis, a prescription drug policy principal with AARP Public Policy Institute, an arm of the influential lobbying group that represents people older than 50, which has advocated for Medicare’s negotiation powers.

“Sometimes people get caught up within the incontrovertible fact that their drug is not on the list, but it can be on the list sooner or later in the longer term in the event that they’re taking a drug that is leading to high costs,” Purvis added.

It’s unclear how much lower the negotiated prices are than the present net prices of the primary 10 drugs, that are heavily rebated by Medicare Part D plans. Those net prices aren’t publicly available, making it difficult to know the way much a Medicare plan and a patient would actually save on a given drug when the negotiated prices start in 2026. Copays could also differ depending on the Part D plan a patient has.

“It’s hard to know the start line, because … those numbers usually are not publicly available,” said Tricia Neuman, executive director for the Program on Medicare Policy at health policy research organization KFF, referring to net prices after rebates.

Still, the Biden administration estimates that the brand new negotiated prices for the medications will result in around $6 billion in net savings for the Medicare program and $1.5 billion in out-of-pocket savings for beneficiaries in 2026 alone. 

The negotiations “looked as if it would go relatively easily – the combination savings are fairly impressive,” Neuman said. She added as prices of more drugs are hashed out during future rounds, it can “increase the extent of savings over time.” 

The worth talks could also put more pressure on drugmakers in the approaching years. Lots of the medications in the primary round of negotiations are already nearing patent expirations that can open the market to competition from cheaper generics, which is able to take a bite out of revenue. 

For instance, Bristol Myers Squibb‘s blood thinner Eliquis is slated to lose patent exclusivity within the U.S. starting on April 1, 2028. The blockbuster drug also faces patent expirations in certain EU markets in 2026.

But over time, drugs much farther from losing market exclusivity could possibly be chosen for future rounds of negotiations, Leerink Partners analyst David Risinger said in a research note Thursday. 

By February 2025, the Biden administration will select as much as 15 more drugs that will likely be subject to the subsequent round of price talks, with recent prices going into effect in 2027. Manufacturers could have until the top of February to make your mind up whether to take part in this system — a no brainer for corporations as they face steep excise taxes or the lack of access to the federal Medicare and Medicaid programs in the event that they don’t. 

“It can begin to get more painful over time,” Jeff Jonas, a portfolio manager at Gabelli Funds, said in a press release Thursday. He noted, for example, that the subsequent round of price talks will likely include Novo Nordisk‘s top-selling diabetes drug Ozempic. 

Jonas added that there was “some speculation that the federal government went easy on the pharma corporations this yr provided that it’s each an election yr and the primary time they’re doing this.” 

After the second round, the Centers for Medicare and Medicaid Services can negotiate prices for an additional 15 drugs that can go into effect in 2028. The number rises to twenty a yr starting in 2029.

CMS will only select Medicare Part D drugs for the medicines covered by the primary two years of negotiations. It can add more specialized drugs covered by Medicare Part B, that are typically administered by doctors, for the round that takes effect in 2028.

That could possibly be an even bigger threat to the pharmaceutical industry, as Medicare Part B drugs aren’t discounted as steeply as medicine covered by Part D. 

“My assumption, since rebates are limited, is that they have farther to fall versus Part D drugs which might be heavily rebated,” Risinger told CNBC in an interview, referring to medications covered by Part B. 

Jonas noted that negotiations for 2028 price changes could include some big cancer drugs, resembling Merck’s blockbuster chemotherapy Keytruda. 

Vice President Kamala Harris, the Democratic presidential nominee, would likely attempt to expand the scope of negotiations if elected and “likely be more aggressive on the discounts,” Jonas said.

But Neuman said that whether she will be able to pass a law to bolster the policy will depend upon which party controls the House and Senate. Harris herself needed to solid a tiebreaking vote within the Democratic-held Senate to pass the unique law.

“There’s some interest amongst Democrats in Congress in doing that, but obviously the law will depend upon which party is on top of things,” Neuman said.

The pharmaceutical industry has argued that the negotiations could cut into their revenue, profits and innovation in the long run. 

For instance, Steve Ubl, the CEO of the pharmaceutical industry’s biggest lobbying group, PhRMA, said in a press release Thursday that the value talks could end in fewer treatments for cancer, mental health, rare diseases and other conditions since it “fundamentally alters” the incentives for drug development.

Medicare can start negotiating prices on small-molecule drugs as early as nine years after they receive U.S. Food and Drug Administration approval, compared with 13 years for biologics. Small molecule drugs are manufactured from chemicals which have low molecular weight, while biologic medicines are derived from living sources resembling animals or humans.

The industry has argued that the excellence goes to discourage corporations from investing in small-molecule drugs.

— CNBC’s Angelica Peebles contributed to this report