It’s a historic day for drug pricing: the Biden administration officially announced the final prices of the first 10 drugs chosen to be a part of the Medicare drug negotiation program under the Inflation Reduction Act IRA.

The Centers for Medicare and Medicaid Services (CMS) highlighted the potential $6 billion in savings for Medicare as a result of the new maximum fair prices, as well as $1.5 billion in savings for people enrolled in Medicare when it comes to out-of-pocket costs.

Most of the new prices of the first 10 drugs — including Eliquis for blood clots, heart failure treatment Entresto and diabetes drug Januvia — constituted more than a 50% cut from their list prices. 

Merck’s Januvia, for example, has a list price of $527, and the new maximum fair price represents a drop of 79% to $113.

In a press conference Thursday afternoon, President Joe Biden and Vice President Kamala Harris touted the new drug prices as part of Democrats’ efforts to enshrine drug pricing reform as a major pillar of the ongoing presidential campaign. 

Both Biden and Harris took credit for the successful implementation of the policy, with Harris reinforcing her role in the passage of the IRA.

“Big Pharma has often inflated the price of life-saving medications,” she said. “Millions of Americans have suffered as a result.”

She added that it is “nearly impossible” for a patient to negotiate lower prices by themselves.

“It’s one person against a huge corporation,” she said. “But Medicare represents more than 65 million people, and Medicare has collective bargaining power. Now, Medicare can use that power to go toe-to-toe with Big Pharma and negotiate lower prices.”

Leading progressive voice and longtime Big Pharma opponent Sen. Bernie Sanders, (I-VT), also commended the White House’s efforts to extract discounts from drugmakers through the IRA.

Impact on the pharma industry: reactions

While the Biden administration has vocally expressed its pleasure with Thursday’s announcement, industry observers have been analyzing how these negotiated prices will impact pharma and biotech companies.

Lee Brown, global sector lead for healthcare at global research firm Third Bridge, wrote in a commentary that the projected savings are in line with expectations based on prior discussions with industry specialists and commentary from executives at several drug manufacturers.

“It is important to realize that the headline discounts of the negotiated prices from the 2023 list prices do not represent the incremental cost savings,” Brown wrote. “We believe the average discount based on Medicare Part D spend likely approximates 10% to 11% with the possibility that the actual percentage of savings falls in the mid- to high-single digits range.” 

Michael Ciarametaro, a principal at healthcare consultancy Avalere, reiterated that the move was a milestone achievement and noted that Medicare will see savings in the future.

“I do think the government’s saving real money. If you look at what they pay versus what they are going to pay, they’re taking a lot of money out of the system,” he said. “At the same time, from a manufacturer perspective, I would say the cuts aren’t as painful as they could have potentially been.”

One factor behind that, he noted, is that many of the drugs in highly-competitive classes are already deeply discounted due to rebates and other factors.

However, other prominent voices among pharma industry players weren’t as happy about the news.

Industry lobbying group PhRMA released a statement that the “ironically named” Inflation Reduction Act was a “bad deal being forced on American patients.”

“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,” PhRMA CEO Steve Ubl said in a statement.

Ubl argued that patients may not see any lower out-of-pocket costs because the IRA did “nothing to rein in abuses” by insurers and pharmacy benefit managers (PBM). He asserted that the IRA has also led to fewer Part D plans to choose from, as well as higher premiums.

Echoing Ubl’s sentiments was We Work For Health executive director Dan Leonard, who said the negotiated prices unveiled Thursday represent “another troubling chapter” in the Biden administration’s “misguided and flawed efforts” to advance the IRA.

“For years, the United States has been at the forefront of medical innovation, with scientists and researchers discovering innovative treatments and therapies to give patients incredible new hope,” Leonard added in a statement. “Unfortunately, that leadership is now in jeopardy as policymakers strip away the infrastructure that has allowed American innovation to shine throughout the world.”

Still, many industry experts backed up Ciarametaro’s take, suggesting that the new prices signaled a softer impact on biopharma than expected. 

In a statement, J.P. Morgan analysts noted that the new prices implied an estimated 20% to 25% net price cut for those drugs.

“This is at the lower end of the anticipated impact that we have heard from investors” who had originally expected 25% to 35% cuts, they wrote.

“[O]verall, we see today’s announcement as helping lift an overhang that has been on the group and providing context on the level of impact we can expect for assets included in future cycles,” they added.

Bristol Myers Squibb CEO Chris Boerner, meanwhile, had hinted earlier in the negotiation process that since the company had seen the final price, it was “increasingly confident” in its ability to navigate the impact of IRA on Eliquis.

Will the savings trickle down to patients?

While the new maximum fair prices will save Medicare money, whether patients will see lower co-pays or out-of-pocket costs is a bit more complicated.

For one thing, a discount on the list price doesn’t always translate to patients spending less on out-of-pocket costs. 

The list price is the price that the drug manufacturer sets, but it’s different from the net price — or the money the drugmaker receives after all of the rebates and discounts are applied via PBMs.

Patient savings will also depend on various other factors, including their insurance plan. Yet another provision in the IRA, set to go into effect next year, will cap out-of-pocket costs for Medicare beneficiaries at $2,000 a year.

Future pushback from pharma might be muted

Many of the manufacturers whose drugs were included in the list have launched lawsuits against the federal government since the IRA passed in 2022, arguing the bill is unconstitutional. 

Ultimately, many of those cases haven’t made it far in the courts or have been dismissed.

The potentially softened impact of the new prices on drugmakers may add to the industry’s reluctant acceptance of the new law, which Ciarametaro emphasized isn’t going away anytime soon.

Pharma companies will have to instead start planning strategically on how they might have to compensate once the new prices take effect in 2026. 

That would likely be the case even if former President Donald Trump wins in November. 

“It’s not clear that Trump has an incentive to remove [the IRA]; he might actually negotiate lower prices,” Ciarametaro said. “From a business standpoint, I would absolutely be planning as if this isn’t going away, because the series of events that need to occur for [an unwinding of the IRA] to happen — a lot of things have to happen, let’s put it that way.”