Medicare's negotiated drug prices will save taxpayers $6 billion in first year, White House says

By Eleanor Laise

Seniors taking drugs subject to negotiation will save $1.5 billion in out-of-pocket costs in 2026, Biden administration says

Medicare has reached price agreements for all 10 drugs selected for the initial round of negotiations under the Inflation Reduction Act, and those price reductions are expected to save taxpayers about $6 billion in the first year they take effect, the Biden administration said Thursday.

The price cuts will also save people on Medicare about $1.5 billion in out-of-pocket costs in 2026, the year they are first implemented, the administration said.

The newly negotiated prices represent discounts of 38% to 79% from 2023 list prices, according to data released Thursday by the Centers for Medicare and Medicaid Services. The government negotiated a price of $113 for a 30-day supply of Merck & Co.'s (MRK) diabetes drug Januvia, for example, compared with a 2023 list price of $527. Medicare's 2026 negotiated price for Novo Nordisk's (NVO) Fiasp and NovoLog insulins, meanwhile, is $119, down from a 2023 list price of $495 for a 30-day supply.

Stocks of the affected drugmakers generally held steady or notched small gains on Thursday.

About 9 million people on Medicare use at least one of the 10 drugs selected for negotiation. Medicare enrollees paid a total of $3.4 billion out of pocket for the 10 drugs in 2022, according to CMS.

The anticipated $6 billion in taxpayer savings far exceeds a previous estimate from the Congressional Budget Office, which projected savings of $3.7 billion in 2026.

The announcement comes just ahead of Friday's second anniversary of the Inflation Reduction Act, which required for the first time that the federal government negotiate prices for a limited set of drugs covered by Medicare. The law also requires drugmakers to pay rebates to Medicare when drug prices rise faster than inflation and caps out-of-pocket costs in Medicare's Part D prescription-drug benefit at $2,000 a year, starting in 2025.

President Joe Biden, appearing with Vice President Kamala Harris on Thursday afternoon at an event in Maryland, highlighted the potential for the law's benefits to expand to more people in the years ahead. "We're just getting started," Biden said, noting that negotiations will extend to up to 20 additional drugs annually in the years to come. As for the $2,000 out-of-pocket cap in Medicare Part D that kicks in next year, Biden said, "Kamala Harris and Democrats in Congress will make sure that $2,000 cap covers everyone, not just seniors."

Of the first 10 drugs subject to negotiation, the most widely used among Medicare beneficiaries is Bristol Myers Squibb Co.'s BMY blood thinner Eliquis, taken by nearly 4 million Medicare Part D enrollees last year. The government negotiated a price of $231 for a 30-day supply of the drug in 2026, compared with a $521 list price in 2023.

The "imposed" Eliquis price "does not reflect the substantial clinical and economic value of this essential medicine," Bristol Myers Squibb said in a statement Thursday. The company said it expects to generate $10.5 to $12.5 billion in worldwide Eliquis sales in 2026 and $8.5 to $11 billion in 2027. The drug is expected to face U.S. generic competition in 2028, Bristol Myers said.

The Centers for Medicare and Medicaid Services is required under the IRA to publish an explanation of the negotiated prices by next March.

Drug companies and their allies over the past year have filed a slew of lawsuits challenging the Medicare drug-price negotiation program but have so far had little success in court. The latest in a string of defeats came last week, when a federal court in Ohio tossed out a U.S. Chamber of Commerce lawsuit that had argued that the negotiation program is unconstitutional.

The negotiation period ended at the start of this month, and despite all the litigation, several drug companies on recent earnings calls have sought to tamp down any jitters about the impact of negotiated prices. After seeing the final negotiated price for Eliquis, "we're increasingly confident in our ability to navigate the impact of IRA on Eliquis," Bristol Myers Squibb CEO Christopher Boerner said on a call with analysts late last month. And after factoring in the impact of the IRA, "we expect to deliver on our long-term outlook," AbbVie Inc. (ABBV) Chief Executive Robert Michael said on his company's earnings call last month.

At Amgen Inc. (AMGN), meanwhile, Medicare Part D accounts for only about 25% of sales of rheumatoid arthritis drug Enbrel, which is also part of the first round of price negotiations, executive vice president Murdo Gordon said on a call with analysts earlier this month. So "that will, in part, mitigate the impact of the CMS price reduction," Gordon said.

Indeed, price negotiations' impact on drugmakers' revenues "may be less than originally anticipated or feared," BMO Capital Markets analyst Evan David Seigerman said in a report Tuesday. The actual effect on pharmaceutical companies' revenues, Seigerman wrote, will depend on the gaps between the Medicare negotiated prices and the drugs' net prices - after accounting for the rebates and other price concessions that drugmakers give to pharmacy benefit managers, wholesalers and payers.

The initial disclosure of negotiated prices should have "minimal stock impacts," Leerink Partners analysts said in a research note Wednesday, given that drug-company executives have lately downplayed the risks and many drugs subject to negotiation were facing losses of market exclusivity in the coming years anyway.

Pharmaceutical executives in recent weeks have continued to blast the program as "price setting," rather than a true negotiation, and a hindrance to innovation. "We continue to believe that arbitrary price setting by the government on life-saving medicines is not good public policy," Bristol Myers' Boerner said on the July earnings call.

Administration officials painted a different picture on a call with reporters late Wednesday. "The negotiations were comprehensive. They were intense," Xavier Becerra, secretary of the Department of Health and Human Services, said on the call. "It took both sides to reach a good deal."

While the Biden administration has emphasized the program's ability to improve prescription affordability for people on Medicare, policy experts say the savings for some older adults aren't clear. A Medicare enrollee paying a fixed copay for a drug subject to price negotiation, for example, may keep paying the same dollar amount out of pocket even as the government's negotiated price drops. Medicare beneficiaries paying coinsurance - a set percentage of the drug's price - will generally see more substantial savings than those with copays, according to a recent analysis by actuarial and consulting firm Milliman that was commissioned by a pharmaceutical-industry trade group.

The Centers for Medicare and Medicaid Services on Thursday highlighted the potential savings for Medicare enrollees paying coinsurance for a negotiated drug. A senior paying 25% coinsurance for Johnson & Johnson's (JNJ) psoriasis drug Stelara, for example, might currently pay about $3,400 for a 30-day supply, CMS said. When the Stelara negotiated price takes effect in 2026, the agency said, that same 25% coinsurance would cost the senior about $1,100 before hitting the catastrophic cap, after which the enrollee would pay no more out of pocket.

The $2,000 annual out-of-pocket spending cap, which kicks in a full year before negotiated prices take effect, may also make it more difficult for many Medicare beneficiaries to discern any distinct financial impact from the price negotiations, policy experts say.

Although the initial round of negotiations involves only 10 drugs, the negotiation program is set to gradually expand to 15 and then 20 additional drugs annually in the years to come. While stocks may see little impact from the initial price disclosures, "we are much more concerned about the longer-term industry impacts" as more drugs are selected for negotiation in years to come, potentially hitting U.S. sales years before those drugs lose market exclusivity, the Leerink Partners analysts said in the note Wednesday.

-Eleanor Laise

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08-15-24 1501ET

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