This week, the Biden administration announced the 10 prescription drugs that have been selected for Medicare price negotiations.

It’s been a long time coming for pharma.

Medicare’s new price negotiating provision was included in the Inflation Reduction Act (IRA) passed last year — marking a significant first step in implementing legislation targeting high drug prices in the U.S.

The 10 drugs — including Bristol Myers Squibb’s blood thinner Eliquis, which accounts for the highest Medicare gross spend at $16.5 billion — will be the first to have negotiated lower prices starting in 2026.

The Centers for Medicaid and Medicare Services (CMS) said it chose the drugs that had the highest gross spend for Medicare. 

Next to Eliquis is Jardiance, Boehringer Ingelheim’s diabetes and heart failure drug, which accounts for $7.1 billion of Medicare gross spending.

Janssen’s Xarelto, Merck’s Januvia, AstraZeneca’s Farxiga, Novartis’ Entresto, Amgen’s Enbrel, Pharmacyclics’ Imbruvica, Janssen’s Stelara and Novo Nordisk’s Fiasp are also on the list. Four of the ten are diabetes drugs, while others treat blood clots, heart failure, rheumatoid arthritis and blood cancers.

Together these 10 drugs cost Medicare more than $50 billion from June 2022 through May 2023 — making up about 20% of Medicare Part D spending. Additionally, Medicare beneficiaries spent $3.4 billion in out-of-pocket costs on these drugs in 2022.

CMS administrator Chiquita Brooks-LaSure said in a statement that the list announcement was a “historic” moment.

“Our goal with these negotiations is to improve access to some of the costliest drugs for millions of people with Medicare while driving competition and innovation,” she said.

The manufacturers of the drugs on the list have 30 days to agree to participate in the negotiations — or else they will have to face excise taxes or withdraw their drugs from Medicare coverage entirely.

If they agree to the negotiations, Medicare will announce the new discounted prices of the drugs on Sept 1, 2024. Those discounts may range from 25% to 60% off a drug’s list price.

Announcement made, action to follow

At the very least, the announcement itself is a symbolic one — which is important in and of itself, according to Cameron Izadi, SVP at Fingerpaint Market Access.

“The spirit of the policy in protecting patients and sustaining the healthcare system and the viability of it, is important,” Izadi explained. “The announcement was more symbolic in nature. The administration is signaling that it’s going to continue down this path, even in the face of litigation from Big Pharma.”

For now, however, analysts have generally suggested that the immediate impact of Medicare’s new negotiating power on the pharma industry may be minimal.

That’s partially because most of the 10 selected drugs on the list already go through a Part D rebate process with CMS. In the process, drug manufacturers who raise the price of a drug faster than the rate of inflation are required to pay rebates to Medicare.

It’s unclear, then, whether the new negotiated price will be much lower than what Medicare currently pays for them. The $50 billion gross cost Medicare estimated in its announcement was the number before accounting for rebates.

“[These companies] have been contracting, giving discounts and rebates to the Part D plans for over a decade now,” Izadi explained. “Some of these drugs’ prices are already below what CMS will be establishing as the maximum fair price. The unknown there becomes: Will that satisfy CMS, or will they try and push those prices lower in the spirit of generating some form of savings?”

In addition, several of the drugs on the list are already facing patent expirations in the next few years, paired with upcoming generic or branded competition. 

Merck’s diabetes drug Januvia is expected to lose its exclusivity sometime in 2026, the same year that the new negotiated prices go into effect. Thus, generic competition would likely overtake the majority of Januvia’s lost profit. Other drugmakers on the list lose patents by 2028 or 2030.

“It really only gives CMS two, three or four years to generate cost savings that are meaningful over that short time period,” Izadi said. “That’s one limitation of being able to achieve the billions of dollars of savings.”

As a result, analysts believe that the initial list will have limited impact on the industry — but additional rounds of drugs for negotiations set in later years could be more impactful.

“As we have been saying since the Inflation Reduction Act first passed, we believe the sector-wide impact of the IRA, including negotiation, on the pharmaceutical industry to be minimal,” analyst Chris Meekins wrote in an investor note, according to Axios.

Other IRA provisions to watch

However, there’s still a big picture, long-term impact of Medicare negotiations — and the other drug price-curbing provisions in the IRA as a whole — taking effect, and it has many channels and intricacies.

While patients may not directly feel savings from Medicare negotiations — the program will largely generate savings for Medicare, which plans to save $25 billion per year — other provisions in the IRA taking effect will lower costs for patients. 

The $35 insulin cap included in the IRA is one prominent example. The later rounds of negotiations — such as 15 more Part D drugs in 2027, and 15 more in 2028 — are yet to come.

“What is the true impact?” Izadi noted. “I don’t think anyone knows because the [new negotiated prices] — and the tone that they set moving forward with the next round of negotiations — will define the true impact.”

Since the IRA was passed last year, the pharma industry has been on the defense. In a press release, lobbying group PhRMA argued that “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.”

A total of eight lawsuits have been launched just this year — including from Merck, Johnson & Johnson and Boehringer Ingelheim, as well as lobbying groups PhRMA and the U.S. Chamber of Commerce — in an attempt to invalidate and potentially even stop Medicare negotiations from taking effect.

The lawsuits are based on a variety of constitutional claims — ranging from the 1st amendment and the Takings Clause of the 5th amendment (which states private property shouldn’t be taken for public use, without just compensation), to claims that the excise tax that would be imposed on drugmakers who don’t participate in negotiations is unconstitutional.

As these lawsuits largely in their initial stages, there’s no saying whether they could potentially halt the Medicare negotiation program entirely. Still, Zachary Baron, associate director of the health policy and law initiative at Georgetown University Law Center, noted “it’s certainly a possibility.”

“If there’s anything we’ve learned in recent years following the courts, it only takes one judge and one panel that may take their own independent view of the constitution,” Baron explained. “Having said that, when you look at the precedent – whether it’s the Takings Clause, due process, 1st amendment or excessive fines clause – the historical precedent has been that a number of these different constitutional challenges against Medicare have been rejected by the courts.”

Ultimately, there’s much yet to play out — how the lawsuits progress, what the negotiated prices released next September will be and whether the drugmakers choose to participate.

For now, the pharma industry — and healthcare marketers — are already beginning to prepare for a shift in operation. 

Lower drug prices through negotiations could lead to lifecycle and profit compression in the industry, which means there will need to be a push for faster intake, according to Izadi.

“For marketers launching drugs in this new environment, the importance of driving and achieving commercial goals and accelerating those commercial goals becomes much more important,” Izadi explained.

That means starting early in the clinical development process, building strong integration with access, marketing, commercial and medical so that there’s one shared message — and ensuring the consistent message is out the door, even with limited budgets. Those sayings that we’ve always heard — ‘flawless execution,’ and ‘it takes a village’ — become much more important,” Izadi said. “Moving forward, the new long-term reality is the IRA — and it’s now the new normal for a lot of products.”