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The Biden administration on Tuesday unveiled the first 10 prescription drugs that will be subject to price negotiations between manufacturers and Medicare, kicking off a controversial process that aims to make costly medications more affordable for older Americans.
President Joe Biden’s Inflation Reduction Act, which passed in a party-line vote last year, gave Medicare the power to directly hash out drug prices with manufacturers for the first time in the federal program’s nearly 60-year history. The agreed-upon prices for the first round of drugs are scheduled to go into effect in 2026.
Here are the 10 drugs subject to the initial talks this year:
- Eliquis, made by Bristol-Myers Squibb, is used to prevent blood clotting to reduce the risk of stroke.
- Jardiance, made by Boehringer Ingelheim, is used to lower blood sugar for people type 2 diabetes.
- Xarelto, made by Johnson & Johnson, is used to prevent blood clotting to reduce the risk of stroke.
- Januvia, made by Merck, is used to lower blood sugar for people with type 2 diabetes.
- Farxiga, made by AstraZeneca, is used to treat type 2 diabetes.
- Entresto, made by Novartis, is used to treat certain types of heart failure.
- Enbrel, made by Amgen, is used to treat rheumatoid arthritis.
- Imbruvica, made by AbbVie, is used to treat different types of blood cancers.
- Stelara, made by Janssen, is used to treat Crohn’s disease.
- Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill, insulins made by Novo Nordisk.
The Medicare negotiations are the centerpiece of the Biden administration’s efforts to rein in the rising cost of medications in the U.S. Some Democrats in Congress and consumer advocates have long pushed for the change, as many seniors around the country struggle to afford care.
But the pharmaceutical industry views the process as a threat to its revenue growth, profits and drug innovation. Drugmakers like Merck and Johnson & Johnson and their supporters aim to derail the negotiations, filing at least eight lawsuits in recent months seeking to declare it unconstitutional.
The drugs listed Tuesday are among the top 50 with the highest spending for Medicare Part D, which covers prescription medications that seniors fill at retail pharmacies.
The 10 medicines accounted for $50.5 billion, or about 20%, of total Part D prescription drug costs from June 1, 2022, to May 31, 2023, according to the Centers for Medicare and Medicaid Services, or CMS.
The drugs have been on the market for at least seven years without generic competitors, or 11 years in the case of biological products such as vaccines.
Medicare Part D spent the most among those drugs on Eliquis at $16.5 billion, according to a CMS fact sheet. More than 3.7 million enrollees used the blood thinner.
The plan spent roughly $7 billion on Jardiance, $6 billion on Xarelto and $4 billion on Januvia.
Medicare covers roughly 66 million people in the U.S., and 50.5 million patients are currently enrolled in Part D plans, according to health policy research organization KFF.
What happens next
Drugmakers have to sign agreements to join the negotiations by Oct. 1. CMS will then make an initial price offer to manufacturers in February 2024, and those companies have a month to accept or make a counteroffer.
The negotiations will end in August 2024, with agreed-upon prices published on Sept. 1, 2024. The reduced prices won’t go into effect until January 2026.
If a drugmaker declines to negotiate, it must either pay an excise tax of up to 95% of its medication’s U.S. sales or pull all of its products from the Medicare and Medicaid markets.
The pharmaceutical industry contends that the penalty can be as high as 1,900% of a drug’s daily revenues.
After the initial round of talks, CMS can negotiate prices for another 15 drugs for 2027 and an additional 15 in 2028. The number rises to 20 negotiated medications a year starting in 2029 and beyond.
“I think it’s incredibly important to keep in mind that the negotiation process is cumulative,” said Leigh Purvis, a prescription drug policy principal with AARP Public Policy Institute. “We could have as many as 60 drugs negotiated by 2029.”
CMS will only select Medicare Part D drugs for the medicines covered by the first two years of negotiations. It will add more specialized drugs covered by Medicare Part B, which are typically administered by doctors, in 2028.
The drug price talks are expected to save Medicare an estimated $98.5 billion over a decade, according to the Congressional Budget Office.
Drugmakers’ legal challenges
Merck, Johnson & Johnson, Bristol-Myers Squibb and Astellas Pharma are among the companies suing to halt the negotiation process. The industry’s biggest lobbying group, PhRMA, and the U.S. Chamber of Commerce have filed their own lawsuits.
The suits make similar and overlapping claims that Medicare negotiations are unconstitutional.
The companies argue that the talks would force drugmakers to sell their medicines at huge discounts, below market rates. They assert this violates the Fifth Amendment, which requires the government to pay reasonable compensation for private property taken for public use.
The suits also argue that the process violates drugmakers’ free speech rights under the First Amendment, essentially forcing companies to agree that Medicare is negotiating a fair price.
They also contend that the talks violate the Eighth Amendment by levying an excessive fine if drugmakers refuse to engage in the process.
The suits are scattered in federal courts around the U.S. Legal experts say the pharmaceutical industry hopes to obtain conflicting rulings from federal appellate courts, which could fast-track the issue to the Supreme Court.
Some drugmakers have confirmed their intention to bring their legal battle to the nation’s highest court.
“As we look forward, we’re going to take this to the fullest, which means we’ll take it through District Court and, if need be, into Circuit Court and ultimately to the Supreme Court,” Merck CEO Robert Davis said during an earnings call earlier this month. “So, really that’s the strategy.”
Meanwhile, the Biden administration has vowed to fight the legal challenges.
Biden and his top health officials have embraced the lawsuits as evidence that they’re making progress in the fight to cut drug prices.
“Big Pharma doesn’t want this to happen, so they’re suing us to block us from negotiating lower prices so they can pad their profits,” the president said in a speech at the White House last month. “But we’re going to see this through. We’re going to keep standing up to Big Pharma.”
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