In a first, Medicare has set prices for 10 drugs, saving billions

The Biden administration on Thursday released the results of the first Medicare drug price negotiations, a milestone in Democrats’ decadeslong quest to have the nation’s largest payer use its leverage to lower prescription drug prices.

The result is a $6 billion savings across 10 drugs when new prices take effect in 2026, according to the White House, and beneficiaries could save roughly $1.5 billion in out-of-pocket costs.

The morning announcement is paired with an event Thursday afternoon in Maryland, where President Joe Biden and Vice President Kamala Harris will tout their efforts to lower drug costs for older Americans.

This marks the first time Biden and Harris have rallied together in public since the president dropped his bid for a second term, and offers a chance for Harris to tout one of the administration’s signature domestic achievements.

“Today’s announcement will be lifechanging for so many of our loved ones across the nation, and we are not stopping here,” Harris said in a statement.

But it’s not that simple. Drug middlemen, rebates, out-of-pocket caps, donut holes and copays all play a role in how much people pay for prescription drugs. Together, these factors make it difficult to decipher how the White House’s estimate of $6 billion in Medicare savings will affect average Americans.

The complexity could also make it harder for the Harris campaign to sell this as a major accomplishment as it aims to woo older voters concerned with rising costs, especially because new prices won’t take effect until 2026.

The first 10 drugs the Biden administration selected for negotiations cost nearly 8 million Medicare recipients $3.4 billion in out-of-pocket costs in 2022, according to the administration . These drugs treat common ailments like blood clots, diabetes and rarer conditions like blood cancers. Some are relatively cheap and used by millions of older Americans, while others are relatively expensive and used by tens of thousands.

The Centers for Medicare and Medicaid Services claimed it negotiated deep discounts off the list price of these medications. For example, CMS negotiated a price for a 30-day supply of the arthritis drug Stelara of $4,695, a 66 percent discount to the drug’s 2023 list price. And the final price for a 30-day supply of Farxiga, a diabetes and heart medication, is $178.50, a 68 percent discount to the 2023 list price.

But the list price is not a fair way to account for savings. Medicare insurance plans already pay steep discounts to the list price of medications because of rebates negotiated between drug manufacturers and pharmacy benefit managers, the so-called middlemen who negotiate rebates with pharmaceutical companies on behalf of health insurers.

And the Biden administration couldn’t say what those actual prices are because the rebates are confidential, obscuring, for now, how hard a bargain the federal government really drove.

“Some of the complexity here is you are negotiating around a number that nobody publicly can see,” said Mark Miller, executive vice president of health care at Arnold Ventures, which invests in health research.

Asked whether it’s fair to compare the negotiated prices to individual drugs’ list prices, which don’t take into account rebates, Dr. Meena Seshamani, deputy administrator and director of the Center for Medicare, said, “that is the comparison that we can make with publicly available information.”

PCMA, a trade group representing the pharmacy benefit managers, was quick to note its own analysis found its members secured deeper discounts than the administration on six of the 10 drugs selected.

“While we share the administration’s goal to reduce prescription drug costs for America’s seniors and to push back against the high prices set by drug manufacturers, the administration has missed the mark by choosing several prescription drugs for which PBMs are already actively negotiating steep discounts that significantly lower costs for beneficiaries and taxpayer,” the group said in a statement.

Stacie Dusetzina, a professor at Vanderbilt University Medical Center, said one possible way to pierce the fog is to look at Imbruvica, a cancer drug that costs Medicare enrollees roughly $6,500 a year – the most expensive on the list, according to the White House. Cancer drugs, she said, typically get little to no rebating so the government’s negotiated price is a decent window into how much drug prices really changed.

“That one's going to be really interesting to me,” she said. “It'll signal to some degree how aggressive the negotiations might be.”

CMS said it negotiated a 38 percent discount off the 2023 list price for Imbruvica, the smallest discount of the 10 drugs selected.

But what’s true for Imbruvica is not necessarily true for a drug like Eliquis, which helps prevent blood clots. In that case, the rebate may have already been so substantial that the federal government doesn’t feel the need to do much more negotiating.

“That wouldn't result in a tremendous amount of savings for the administration to claim on that particular drug,” Dusetzina said. “However, it could be, [a] helpful thing to see.”

It would help explain why Bristol Myers Squibb CEO Chris Boerner said during his company’s most recent conference call that “having seen the price, we're very confident in our ability to navigate the impact of IRA on Eliquis.”

Bristol Myers said in a statement Thursday that the announced prices from CMS doesn’t take into account the role of pharmacy benefit managers.

“By focusing on government price setting, the IRA overlooks the biggest problem in patient affordability: how plans determine patient out-of-pocket costs,” the company said.

Going forward, Medicare must explain how it arrived at the prices by March 1. CMS plans to finalize guidance this fall for the next round of negotiations, and it’s scheduled to publish the next 15 drugs selected by Feb. 1. The prices reached during those talks would take effect in 2027.

Pharmaceutical companies and their umbrella organizations are challenging the law in court. But federal district courts have yet to rule in the industry’s favor, denying seven challenges to date.

Several individual drug companies said Thursday that the new prices won’t help patients as much as the government contends and could stifle innovation.

Steve Ubl, president of the Pharmaceutical Research and Manufacturers of America, an industry lobbying group, said the Biden administration is trying to score political points and overhyping what the new prices mean for patients.

“The administration is using the [Inflation Reduction Act’s] price-setting scheme to drive political headlines, but patients will be disappointed when they find out what it means for them,” he said in a statement. “There are no assurances patients will see lower out-of-pocket costs because the law did nothing to rein in abuses by insurance companies and PBMs who ultimately decide what medicines are covered and what patients pay at the pharmacy.”